The future prospects for telecom integrators to develop their business

03.10.2007

A year ago the division of telecom solutions was separated from the INLINE Technologies Group into a separate company - Inline Telecom Solutions. , was interviewed by Vestnik Sviazy (monthly scientific and technical magazine, which is existing on the market almost a century) to tell readers about current situation, future plans and specific operations environment on the telecom market.

What do you think about the current situation on the Russian telecom market? What are the opportunities for systems integrator to operate successfully?

Market is changing. Telecom operators have become more exacting when dealing with system integrators. Moreover, the visibility of investment volume of operators leads to the market transparency and inevitably impacts on the competition between systems integrators. Also, I'd like to put stress on foreign vendors operating on Russian market. They make the competition stronger, because they are eager for a profitable segment of business, and they'll never let Russian companies to penetrate into these sectors. That's why it's hard enough to enter such segments as supplies of mobile stations and switching equipment for mobile operators. To stay competitive we are constantly looking for new ways. But when a unique technology expertise is found the period of its profitability is about 6-8 months; and then competitors start exploring this technology expertise in their solutions. Moreover, from the operator's side, their experts are obtaining the knowledge which encourages them to explore and operate the solution without systems integrator's support. However, by this moment, we've got already new knowledge and service options.
Contemporary operators have to accomplish such tasks as expenses reduction, decrease operating costs, and it becomes difficult to persuade them into buying various types of equipment. Sometime ago it was easier because most of them were anxious to build broadband networks and create IP-based solutions. Now we can see that the most of operators have already built such networks and they are busy with optimization of operating costs. So, for newcomers on the market it becomes much harder to sell new technology solutions. We have to carefully investigate operators business, draw detailed business plans, do business pre-selling and business integration actively. And the systems integrators have to invest more and more their resources into this part of activity.
Usually, we show the services in use and prove their profitability with the facts at the operator's site. We let them know the ways of increasing their revenues by rolling out these services. And we could offer the technology solution based on the service. It appears to be a unique method. I mean, first to develop the service and then the solution (as a basement of the service).

How did the amendments to the Federal Law "On communications" impact on the systems integrator activity? Do you work with the newcomers on the market of long-distance communications? How do you deal with the traditional, alternative, mobile operators and with the group of companies "Svyazinvest"?

The operators' great interest in receiving licenses for local and international communications resulted from the amendments to the Federal Law "On communications". At the same time, there are a few operators, who really fulfill license requirements and I suppose there will be about 5-7 operators finally on the market. In fact, just a few operators have started to use the licenses, namely "Rostelecom", "Golden Telecom", "MTT", "Transit Telecom". We develop their regional projects which basically concern building softswitch-based networks (class 4 and 5). We pay great attention to learning the laws concerning telecommunication industry, to give an advisory and expert opinion to operators. For example, when the amendments to the Federal Law "On Communications" were adopted operators faced some tricky questions.

Due to changes in the law "On communications", incoming calls are free, and charges apply to outgoing calls only. Such an approach decreases revenues of mobile operators, and marketing folks of operators ought to search new ways to compensate these revenues loss. In this case, operators can leverage the use of VAS's such as value-added content, mobile TV and so on.

As for Svyazinvest group of companies, we deal with them in hardware and software installations and OSS/BSS development. We actively implement complex integration projects of different vendors' systems within one network.

You have mentioned the value-added content. Are the services of video content delivery of great demand on the market now? What are the prospects of their development in this country?

Currently, content is delivered to subscribers of broadband access networks, Metro Ethernet and mobile networks. Tier 1 operators actively push the IPTV solutions because rendering IPTV services enables them to increase their ARPU level and reach subscribers loyalty. Basically, the content itself came into focus of the operators' activity when they had built primary broadband network and connected the subscribers. When operators start developing IPTV solutions, they face the obstacles of content distribution/receiving, including legislation issues. Coping successfully with the legislation issues, including intellectual property rights and copyrights, is directly related to additional investments.

Regional operators will challenge local content production. Users in small cities may be interested in creating and managing such content. I think IPTV solutions and related applications could be one of the perspective and essential business lines for operators of network access, Metro Ethernet and service providers for the future. And we keep our eyes on ball, dealing with all our clients within this telecom business line.

As for mobile video content, my position is conservative. I don't consider this service to be of great demand in the future. I think that vendors are interested in boosting this service to sell more expensive equipment required for transmission of high-speed information stream to terminals. And as a result, operators will have to spend their recourses to modernize their networks. To receive video mobile content, the screen of terminal has to be of a larger size, and other software will be in need. But really, nobody knows if these services would be of demand. Maybe people stuck in a traffic jam would watch news program or football broadcast.

What kind of financial schemes do you use when dealing with telecom operators? How do you build managerial and engineering interaction, and how do you assign responsibilities?

We practise different financial schemes. First of all, we deal with Russian leasing companies from Moscow and Saint-Petersburg. But in case that operator has already strong relations with a leasing company, we can dramatically decrease time. Because the operator's company already knows the risks and capable of calculating precisely all the possibilities.
But sometimes we face complex issues when the operator needs additional financial resources and we have to find the best leasing solution. So, we together with operator search for a leasing company which will assume some responsibilities within the project as well as finance the business. In this case we prefer to deal with those financial institutions which are dealing with foreign vendors.
We have strong relations with vendors which can trust their equipment to operator. E.g. we've got already successful experience under such a scheme with ECI Telecom.
And of course we practise such a scheme, when we give credit to the operator to purchase equipment, though it's risky. The period of credit varies from 6 to 12 months. As for the interest rate, we take into consideration the average rate existing on the market.
This is an ordinary scheme, because very often the operator fails to pay in advance 100% of amount. And the operator prefers to take credit or to find leasing solution because it's profitable for him/her.
So, let's talk about allocation of responsibilities now. Each project is unique, and depending on the project we allocate responsibilities. But often the operator requires technical solution to be on the integrators servicing. In case that solution is complex and consists of multiple components, we entirely service it providing 24/7 service support.
We have the Software Solutions Division in our company. This unit is developing and implementing billing solutions for telecom service providers and enterprise customers based on the billing and customer care system (B&CC) Bill-Master. There have been more than 180 installations and upgrades of Bill-Master in middle- and large-size companies all over the world. The division provides their own 24/7 service support.
Currently, we are developing the business line of operator network monitoring solutions Offering the outsourcing of all networks recourses. This segment is quite complex and is under development at the moment, but we've got a vision how to realize such monitoring of network infrastructure to reduce operational costs. Because we deal with a huge amount of operators we are able to optimize not only the warehousing issues but also deliveries and effective training for technical experts.

When realizing a large project, do you invite any systems integrator as a partner to fulfill the project?

We can sometimes involve contractors when we need more resources to fulfill the project or to implement several projects in regional solutions, for example, to investigate project sites. And these contractors could be systems integrators or suppliers of telecom equipment or research institutes which we employ to develop project documentations.

Which technological areas of activity are in the focus of Inline Telecom Solutions?

The first is all aspects of backbone line solutions - SDH and MPLS. The second is the features concerning customer-access network - wireless and wired solutions. The third segment is Metro Ethernet solutions to render broadband services. The other area is construction of the 4th and 5th class softswitches.
At present, we posses a serious expertise of OSS/BSS projects implementation. We also develop solutions in the following segments: engineering systems including delivery and implementation of power-supply systems, conditioning, and their distance monitoring. And of course, there is a strategic line reflected in the B&CC system "Bill-Master"-based projects.

Just a year ago Inline Telecom Solutions became the member of INLINE Technologies Group. Can you now evaluate the effects and determine the main criteria of such development?

We succeeded to arrange internal business processes and to build a team of highly qualified specialists. Being an independent company gives us the opportunity to focus our business processes on the market to match better the telecom operators segment. We also succeeded to prove our scientific and technological expertise which is necessary for operators successful operation. And it's really essential for the operator, because any purchased equipment and solution is appeared to be vital for their business. And if a corporate client is able to run business without deploying corporate network or IP-telephony, for telecom operator it's inadmissible. In this way, the telecom operator applies completely different requirements for reliability and fault tolerance of equipment and solutions. And we possesses special knowledge and expertise which are essential to meet the above requirements.

What can you say about telecom market saturation in Moscow, Saint-Petersburg and other big cities? Will the regional telecom market revenue exceed the Moscow and Saint-Petersburg-based sales volume?

I guess it will not. Because the main monetary flows are accumulated in Moscow and Saint-Petersburg, and from the money-based point of view these regions are the most capacious. I mean the ARPU, average salary rate etc. But as for regional markets, of course they will reach the proper level. At present there is a plenty of governmental programs to develop regions. And surely these programs result in developing of production complex and increasing of the population living standards.
However, there's a lot to be done in Moscow and Saint-Petersburg as well. For example there's still a necessity to connect subscribers to Internet and telephony. Undoubtedly, the regions will not exceed Moscow and Saint-Petersburg in value-added services like TV, Triple Play, and content delivery.

What are the most significant projects realized by Inline Telecom Solutions in 2006 - 2007?

I can mention rather big project implemented for "Start Telecom". Our company has built the backbone network based on IP MPLS and DWDM. This was a mixed solution: MPLS infrastructure was built on the base of Cisco Systems and Juniper equipment, and DWDM trunk was based on ECI equipment. We keep working with a huge amount of Metro Ethernet providers in Moscow and in the regions. For example, we are now in the middle of project implementation for "Iskratelecom" in Moscow. As for networks building, we are fulfilling a number of big projects in Moscow and in the regions together with "Electro-Com" group of companies. We have implemented several projects with NGN networks. Also, we have successfully implemented some projects for MTS.
At present, we are close to fulfillment of the project for M2C company in Murmansk. In this project, the Metro Ethernet network with the ability to render Triple Play services is built covering the entire city area. Meanwhile M2C renders telephony services and broadband access, but investors are planning to expand their scope of services. It's also possible to provide a number of solutions for utility services based on the above network. In this project, the know-how of M2C is integrated with our solution.

Also I'd like to mention some projects of a federal-level scope. Quite a lot of projects were fulfilled for "Dalsviaz", and we keep developing these projects to have them finished by the end of this year.

What are your company's tasks for this financial year?

This financial year lasts from 1 April to 31 March next year. We are planning approx. 40 % increase in our annual turnover. According to the Q1 results we manage to keep these rates.

Can we say that the telecom market is matured already? What do you think?

There is no doubt that the market has formed already within the following segments: services, solutions and operators' structure. Nevertheless, there is a wide variety of services and solutions which are widely implemented on western markets, but haven't rolled out in Russia.
Will these services be of demand in Russia? There are cultural and mentality differences. For example, in Japan you can meet people walking in the street and singing karaoke via mobile phone. We can't imagine anybody acting this way in Russia. So, it's very important to develop marketing program in depth as well as carefully calculate return on investments.
But of course there are some market segments which aren't formed yet. I mean wireless access, WiMAX, content and its legal issues, legal use of software. And of course, some kind of market formation is expected by regional and social characteristics of the subscribers.

Evgeny Petrov, Managing Director, Inline Telecom Solutions