Backbone!CONFIDENTIALThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.TelecomITPMarch2001HowChangesinTechnologyandtheRiseofIPThreatentoDisrupttheUSLong-haulTelecomIndustryST-262408.420/001013SmchiHR12Objectives•Developacompellingviewontheevolutionofbackbonenetworks(e.g.,technology,performancecost)andtheresultingimplicationsfor–Structureofthelonghaulservicesindustries–Conductandperformanceof“traditional”andnewserviceprovidersOverviewOfTheBackboneEffort•Geography:U.S.(primarily)•Customersegments:largeenterprises,SME,residential•Services:voice,privateline,“legacy”data(i.e.,framerelay,ATM),IP•Timeframe:3-5yearsoutScope•Staffwithfull-timeteam(i.e.,practicesponsored)•PartnerwithJ.P.Morgan•Aggressivelyengageindustryexperts,serviceandequipmentprovidersApproachST-262408.420/001013SmchiHR13TheBackbone!TeamRobDevotoWashington,D.C.202-662-3397PeterEwensDallas214-665-1768JasonKaysDallas214-665-1728SimonLandlessStamford203-977-6741StaggNewmanWashington,D.C.202-662-0958SteveSisselAtlanta404-335-3686ST-262408.420/001013SmchiHR14MostimportantBroadenandstrengthencontacts,networkBuildreputationasthoughtleaderAssistrelatedknowledge-buildingeffortsEngagenewclientsonarangeof“hot”topicsAddvalueonnewtopicswithexistingclientsSignificantimpactConsciouslybringasmanyexternalperspectivesintotheeffortaspossible(e.g.,throughinterviews,previewingresults)Developandproactivelypromoteacomprehensive,fact-basedperspectiveonnextgenerationnetworksAggressivelyleverageourworktochallengeexistingclientsand“covered”companiesAggressivelyleverageourworktogainintroductionstonewclientsandexpandcoveragelistContributeperspectivetootherMcKinsey(e.g.,Broadband)andJ.P.Morgan(e.g.,equipmentresearch)effortsProjectObjectives:ImpactST-262408.420/001013SmchiHR15Who’sright?AT&TorLevel(3)•Istheindustrypoisedtoseeasupplyglutorwillstrongdemandliftallboats?•Whoismorefundamentallyadvantaged?Challengersorincumbents?•HowwilltheimpactofIPsubstitutionaffecttraditionalvoiceanddataservices?ContextForOurReportPrincipalfocusofourin-depthresearchST-262408.420/001013SmchiHR16ResearchHighlights•ExplosivegrowthfromIPdatasettodominatelong-haulbackbonetrafficwithinthreetofouryears•IP-basedservicesnowappearsettotakesignificantsharefromlegacyservices•IndustryrevenuegrowthunlikelytoaccelerateasshareshiftstoIP-basedservices•Transportcostpositionlargelydrivenbyscaleandutilizationratherthantechnology•Industrywillfaceconsiderableturmoilaschallengersseekdisruptionandincumbentsrestructure•Edgeplayersandintermediarieswilladdtocompetitivepressuresinlong-haultransport•Industryshakeoutlooms–capitalmarketswillinfluencetiming•Assetownershipwillremainimportantformanyservices•QualityofexecutionwillincreasinglyseparatewinnersandlosersST-262408.420/001013SmchiHR17IPDataExpectedToOvertakeAllOtherTypesOfNetworkTraffic02004006008001,0001,2001,4001,60019981999200020012002200320042005TotalUSTrafficPetabytespermonthCAGR40%30%110%InternetLongDistanceVoicePrivateLineNon-IPData(ATM,FrameRelay)9%EstimatesSource:AT&TLabs(CoffmanandOdlyzko);Lucent(Stanzione);JPMorganST-262408.420/001013SmchiHR1820304356697921212018141...
