The Rise of the MTU Equipment Market

Miniaturizing the central office

When multitenant unit service provider OnSite Access needed a DSL access Multiplexer that it could place in the basements of office buildings two years ago, it found little to fit the bill. At the time, all DSLAMs were designed for use in central offices, making them far too big and costly for OnSites requirements.

John Reese, OnSites executive vice president of engineering and operations, says that instead of equipment salespeople making pitches to him, he had to plead his case to vendors, finally getting the ear of a less-than-enthusiastic Copper Mountain Networks. "We drove Copper Mountain very, very hard to build a DSLAM for our scale," Reese says.

Fortunately for OnSite and other MTU service providers, those days are mostly behind them. Telecommunications equipment makers are now paying much more attention to the MTU market, and they are rolling out a new genre of gear designed to take telecommunications services out of telephone company central offices and into the basements of multitenant buildings at the edge of networks.

This equipment offers similar management capabilities to those sold for central offices, but at a scale suited to serving an office building, apartment complex or hotel.

"Youre finding a lot more vendors building gear on a smaller scale," Reese says. "Life has gotten much easier for us in the last two years."

Although the telecom market shakeout could put a damper on things, there is a promise of strong growth for MTU equipment sales. And as service providers focus more on profits, gear makers are focusing less on fancy and expensive technologies and more on the most cost-effective solutions.

Certainly, service providers are eager for the gear. Specialized MTU equipment emancipates them from colocation in central offices and working through the bureaucracy of incumbent provider provisioning. It also offers them better control and monitoring of services, while making it far easier to start new services or to upgrade the old.

"It used to be the final mile; now its the final foot," Reese says of the movement to place networking gear as close to the customer as possible.

Smaller players such as Copper Mountain have been the most eager to address this market, but now even the big guns — Cisco Systems, Lucent Technologies and Nortel Networks — are rolling out specific equipment for the size and management needs of MTU telecom services.

Most vendors say they are focusing on the network because of its potential.

"Some consider the MTU market underserved, but I consider it a wide-open, lucrative market," says Alan White, a senior product marketing manager at telecom equipment maker Nortel.

Other executives note that 70 percent of central offices now have DSLAMs, a fact that is inspiring big vendors to spin off their gear into the largely untapped MTU space.

At the end of April, Nortel expects to release a DSLAM specifically tailored to the MTU market. The Universal Edge Intelligent Multiservice Access System Remote offers 24 ports in a pizza-box-sized unit, with all the management functions of a typical, full-sized central office DSLAM, White says.

Market Surge Forecast

A recent report by Cahners in-stat group forecasts a rosy picture for MTU equipment sales, at least over the next few years. The research company expects sales of MTU-related equipment to jump from $184 million in 2000 to $558 million in 2005, about a 304 percent increase. Much of that growth will happen over the next two years, with sales increasing 25 percent this year, and surging 182 percent next year. Sales will taper to 22 percent growth in 2003, and then fall 12 percent in 2004 and 20 percent in 2005.

Services look even stronger for the same period, growing from $91 million in 2000 to $3.4 billion by 2005. Unlike hardware sales, services will continue growing in the long term, as well as increasing more than 200 percent in both 2001 and 2002.

Amy Helland, the author of the Cahners study, says that equipment makers will benefit in the short term, as MTU service providers catch on. But the market is already small, so the growth is not that great in real dollars, at least compared with the central office or other established telecom equipment markets.

In the longer term, the limited number of MTU buildings will temper the growth of equipment sales, Helland says. There are only so many office buildings that need these types of services, she says.

Economic Wild Card

The wild card in the MTU services game is the downward-spiraling economy and capital markets.

In response, there has been a quick swing in MTU service providers strategy: Before the Wall Street meltdown, they were all working on getting equipment into as many buildings as possible. Now, theyre trying to recruit more customers for their current deployments.

Scott Heinlein, a consultant at TeleChoice, expects at least some MTU service providers to go out of business over the next year, as pressure to show profits increases. The current economic climate is also likely to lead to consolidation among MTU equipment vendors, Heinlein adds. So, at least in the short term, MTU equipment makers could have a tough go.

"Deployments have slowed down considerably," Helland says.

Jeff Weiss, vice president of engineering at MTU service provider Allied Riser Communications in a Dallas, says that the economic environment has tempered his companys equipment purchasing plans. Allied Riser wants to wait and see how vendors are going to fare during these tough times. Weiss worries that his orders may be delayed if a company is bought out, and the new, bigger owner does not have the same customer service concerns.

The MTU market has yet to live up to its hype, as service providers have struggled to sell their offerings, Heinlein says. Smaller companies that populate most office buildings havent adopted advanced services as quickly as MTU service providers had assumed, he says.

The next 18 months will be a critical period in the MTU equipment market, Heinlein says. "There has to be some success soon for the equipment people to survive," he says.

Dollars and Sense

The economic environment is also raising service providers interest in the most cost-effective equipment and services, rather than the most theoretically promising or technically impressive ones.

If a service provider does buy equipment, it needs to squeeze as much profit as possible from each dollar spent. One obvious way for service providers to lower costs is to avoid rewiring a building by running data ser-vices over existing phone lines.

Jerry Dusa, CEO of RC Networks, a San Diego equipment vendor with patented technology for running Symmetric DSL at up to 2.3 megabits per second over telephone wires, says his company has been enjoying a surge of interest from a variety of service providers over the last 120 days.

Competitive carriers that "wouldnt even talk to us a year ago," are now calling on RC, he says. Cable companies — which typically dont have their coax lines in office buildings, but have fiber running past them — are also showing interest in RCs gear as a low-cost way for extending their communications networks into office buildings.

Incumbent carriers have begun to take notice of RC as well, as are some of the larger foreign carriers, Dusa says.

RC has also caught the attention of Alcatel, which entered into an agreement to use the vendors gear to distribute the broadband signals collected by fixed wireless equipment throughout a building.

According to Dusa, RCs equipment can lower costs enough to make deployments in smaller MTU buildings, such as office parks, profitable.

Other vendors, including Extreme Networks in Santa Clara, Calif., are also focusing on options for using the existing communications infrastructure of a building.

Extreme bought Optranet earlier this year, which made a product for running Ethernet over twisted-pair copper phone lines for up to 3,000 feet.

Extreme first focused on the MTU market over a year ago with its Ethernet switches. The company has also developed a card for its switches that connect to T1 (1.5-Mbps), T3 (45-Mbps) and other leased lines running into a building.

Customers are now testing Extremes Alpine Ethernet switches with wide area network connectivity capabilities. The company plans to release the product midyear.

In addition, vendors such as Tut Systems in Pleasanton, Calif., are promoting their smaller-scale gear as a way for service providers to preserve capital. Tuts IntelliPOP product, which offers up to 15-Mbps throughput using Very-high-speed DSL technology, has only 12 ports and costs about $11,000. Providers can buy just one and spend more on another stackable IntelliPOP when they have enough customers filling up the ports on the first one.

Fragmented Market

MTU gear may share some basic characteristics, but the market is extremely fragmented, thanks to the wide array of technologies that vendors are using and the variety of services that competitive carriers are trying to offer.

The MTU equipment market includes office buildings — the main focus of sales and services — as well as multidwelling units, such as apart-ment buildings and complexes and hotels, known as the hospitality market.

Equipment makers such as Cisco and Nortel are also looking at new so-called master-planned community housing developments in the same light as MTU buildings. Like office and apartment buildings, these developments include residents with common telecommunications needs, living in a defined area that is controlled by a common property manager or owner.

But the needs of companies in office buildings are generally much different than those of apartment residents or hotel visitors. While each of these segments has overlapping concerns, they also require different equipment for targeted services.

Much of this fragmentation stems from the fact that the market is very young and populated by independent vendors, each with its own take on things. Some focus on DSL services, others offer voice-over-Internet Protocol gear or concentrate on point-to-point wireless feeds to office rooftops. Some concentrate on running data through existing phone wires, while others use solutions requiring Category 5 Ethernet cabling. It seems as though every manufacturer has a different mousetrap for this market. The bigger vendors have yet to take over, and homogenized equipment development and service providers have yet to find the killer equipment and service combination.

Kirby Russell, director of next-generation access marketing at Lucent, says that the market has been hampered by "bits and pieces" gear, with no packaged equipment offerings for streamlining installation. "Theres an ease-of-use factor thats very important to building owners and carriers," Kirby says.

According to Kirby, Lucent has offered MTU-oriented gear for several years, but, he admits, "weve never really gone after the market with a complete solution."

Like other vendors, Lucent plans to offer equipment that is easy to deploy. The company will release a new version of its Stinger DSLAM box that will be scaled to the MTU market. Kirby says that the Stinger will support up to 8-Mbps DSL feeds over 1,400 feet on copper wire, helping to eliminate the need to rewire the building.

Broadband Rules — for Now

Basic broadband access is clearly no. 1 on the service provider hit list, followed by various types of converged voice and data capability.

The general thought in the market, however, is that broadband is quickly becoming a commodity, and in the long run, service providers will need to offer value-added options to interest customers and maintain profits. These types of services will need new equipment.

Service providers have been using all kinds of gear over the past couple of years to link into MTU buildings. Most of this equipment has been central office gear or customer premises equipment modified for use in building basements. But equipment specifically created for deployment within an MTU building needs to be somewhere between central office equipment and CPE. It must run on a smaller scale than central office gear, targeting services to only a couple of dozen customers. Central office gear is just too expensive and is overkill for the needs of MTU service providers.

CPE, on the other hand, is typically designed for only one user and lacks many of the customer management capabilities needed by telecom providers to collect usage information for billing and other customer services.

A few other wish-list items from MTU service providers would include equipment that is stackable and in a small form factor — preferably 1 unit, or the size of a pizza box — and designed for easy deployment and quick service provisioning.