SVW Interview: CTO John Roese on Nortel's Burn the Boats Strategy for 4G
The clap and rumble of thunder is followed within seconds by the sound of a torrential, tropical downpour. I'm sitting in the Tonga Room, in the bowels of the swank Fairmont Hotel in San Francisco, with John Roese, CTO of Nortel, the $11bn Canadian telecoms equipment giant.
The thunder and lighting and tropical rain storms are fake, and only briefly interupt our conversation, which must sound like mumbo jumbo to many of the happy hour crowd that is sitting on adjoining tables.
As soon as I met Mr Roese that Thursday evening, we launched straight into a conversation about the IPSEC standard, and then into an alphabet soup of acronyms associated with a multitude of communications standards and Internet technologies.
But that's what this sector is about: billions of dollars being staked by telecommunications, cable companies, government agencies and enterprises on numerous existing and next generation communications and networking technologies.
The problem is that not all sectors of the market are as fast moving as others. There is a lot of older telecommunications and Internet infrastructure in place.
Yet there is a fourth generation (4G) of mobile wireless and communications technologies ready to roll. They offer dramatic improvements in capacity and equally dramatic reductions in costs.
Burn the boats
However, there is still a lot of 3G and older equipment being purchased with few gung ho proponents for 4G. It is a status quo that Nortel was once happy to support unti just a few months ago, when it came up with a radical new business strategy.
"We realized that for Nortel to be successful, we had to get totally behind 4G. That's why we have been selling our older lines of business. We call it our burn the boats strategy. It is what Alexander the Great did when his army crossed into Asia, there is no going back."
I said it was very brave of Nortel to do such a thing and it showed that it must be confident it can shift the telcos and cable companies into making large investments in 4G. From where I sit, I don't see that happening anytime soon.
Fat, dumb and happy
Fat, dumb and happy is how Mr Roese described the attitude of some large telcos. And it was refreshing to see that he pulled no punches in his criticism of telco/cable industries for their slow rate of progress in bringing new technologies to consumers.
From the telcos/cable point of view, why mess with a good thing? My bill for telephone/mobile calls, and cable/entertainment has tripled over the last five years.
Yet I'm not talking more on the phone, or watching more TV. Plus, in those five years, those providers have adopted lots of comms technologies that have slashed their costs but not mine.
Last mile paved with gold
The last mile into the home has become the golden mile for the duopoly that controls it--all with government approval. Being a regulated industry has lots of benefits.
Mr Roese smiles and nods. He is much more optimistic than I am. He should know about these things, at just 36 years old, Mr Roese is already a veteran of this industry.
I joined Nortel in the middle of 2006 after being CTO of networking technologies at Broadcom in California, CTO at Enterasys Networks (along with being CMO, CIO and a host of other roles) in Andover, Massachusetts, and CTO of Cabletron Systems.
The fact that this is my fourth CTO role of a significant public telecom company by age 36 can either mean that I am overly focused on this type of work or that I really enjoy being in the center of the telecom industry. The truth is probably a bit of both.
BTW, Mr Roese is not the only new blood, numerous top jobs at Nortel have been refreshed in the past couple of years. CEO Mike Zafirovski joined late 2005 from Motorola and GE.
Nortel also has Lauren Flaherty as chief marketing officer, an IBM veteran. She is considered one of the top marketers in the world and very keen on new media, blogs etc.
An $11bn startup
I tell Mr Roese that I'm impressed with this bold "burn the boats" strategy. It must do wonders to boost morale at one of the oldest tech companies in the world (Canada's Nortel is more than 111 years old). Not to mention the brutal years of retrenchment and job losses from the dotbomb fallout.
"Morale is up, our people are very excited. We see ourselves as being an $11bn startup. We are totally focused on 4G becoming a success. And what will move the telcos is competition," he says.
He names a few upstart companies such as Clearwire, which is betting on WiMAX, one of the 4G technologies. And there are others in developing regions of the world--which is understandable because there is no legacy business or legacy infrastructure to protect ... and to continue to milk.
In North America, Clearwire and a few other small companies, are just a drop in the bucket in terms of potential 4G spending. I would think that it would take more than that for the major telcos to get serious about 4G in a hurry.
And there are other infrstructure drivers that still need to take place. Intel (an SVW sponsor), for example, won't have it's WiMAX chipset ready and in volume until late 2007. Then there has to be time for the market to build, which means a good two years or so before 4G WiMAX systems light a fire under our incumbent last milers.
Mr Roese says things will happen faster than that, (but then he would, he doesn't have a boat...or a paddle).
Extending enterprise 4G
He says that the enterprise market will be one of the key drivers of change because corporations will want to extend their use of WiMAX and other 4G comms technologies beyond their walls.
"We are doing a lot of work in getting the business people talking with the telcos so that they can see there is demand for 4G. We are also doing a lot of work talking with governments such as the Canadian government about where research and development funds should be directed."
These, and many other projects, initiatives, and efforts to educate markets will pay off for Nortel, says Mr Roese. And Nortel's investment in developing a range of 4G communications technologies means it is ahead of rivals.
I ask Mr Roese if WiMAX and other 4G technologies work as advertised? It seems there has been much talk about their promise of cheap, ubiquitous wireless broadband but not that many pilot projects.
He says that there is no doubt about the effectiveness of 4G and that Nortel is setting up a WiMAX umbrella in Ottowa and other municipalities, to demonstrate that it works.
Silicon Valley blackspot
I ask him to consider setting up San Francisco and Silicon Valley as a WiMAX hotspot to prove the technology. It seems as if the telcos deliberately keep the Bay Area in a backward blackspot.
Getting a decent broadband connection is as difficult as getting a decent mobile phone signal in large parts of Silicon Valley. That has to be deliberate.
My theory is that this is done by the telcos just to mess with Silicon Valley and it's so called disruptive companies and technologies--it's a finger in the air rather than a signal in the air.
Eat your customers
What I'd love to see is companies such as Nortel taking a much more aggressive approach to move markets. Instead of "eat your children" as Intel chairman Andy Grove has advocated, I'm looking for "eat your customers."
Nortel, and other companies that have groundbreaking technologies, should set up new businesses that challenge and compete with their customers. They'd only need to do it in a one or two regions, eat the lunch of just a few customers, before the rest of the market got the message and switched to the new technologies in double quick time.
Clearly, Nortel has lots on its plate without venturing into the telco business directly. It must execute on a bold strategy that will be very interesting to follow: Nortel has burned its boats but most of its potential 4G customers haven't.
. . .
An excerpt from John Roese’s Blog:
I have no doubt that the 4G wireless world will have dramatically different economics because, in order to be hyper-connected, a per-device monthly cost of US$50+ is not realistic. Additionally, if we drive down the cost of connections to a level that supports hyper-connectivity in the developed world, we may be able to achieve full connectivity for people in the developing world. Today, the technology elements are coming together to make that possible. What we must now decide is what we, our governments, and the world will do with the technology in order to close that digital divide.
A comment on the blog by an ex-Nortel exec:
I’m a Nortel alumnist. Unfortunately, I succumbed to my frustration with the Nortel culture of the 90’s and left for life in tech start-ups.
In my nearly 10 years at BNR/Nortel, I’d been a part of both public and enterprise sides of the business in roles spanning management of various R&D orginizations, Bus Dev, Sales & Marketing, and even a short ’sabbatical’ in an M&A team. One of my most memorable and frustrating roles was attempting to drive forward strategic alliance initiatives with folks like Microsoft, Intel, IBM, etc. There were a fantastic volume of initiatives where Nortel had a real opportunity to take the lead with partners like Intel and Microsoft in defining how the content and computing plane interacts with the network plane. We were simply bringing smarter people to the table than ‘the other guys’ and were held in extremely high regard for both technology and go-to-market strategies that we were proposing.
At the time, there absolutely zero appetite within Nortel to pursue these initiatives - and an equally minuscule understanding of its strategic importance. To a great degree, our team at the time was partly to blame for our failure - we were driving ahead a huge change in how a company needs to innovate and compete on both R&D and GTM fronts. While our efforts were, in my view, the right strategic direction, it was also extremely clear that we were trying to change deeply rooted culture in a very short time span.
I could not be more excited to see leadership in place who are able to react and drive the company ahead with the kind of vision that I’ve read about in this blog.
I have become more ‘impressed’ by Nortel in the last weeks following this blog than I have been since leaving. I’m almost sorry I’m not there to help.
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