OSS Opportunities in the Changing CLEC Market

Study Rationale

The market for Operations Support Systems (OSS), the software solutions that allow service providers to create, deploy, and manage a wide variety of services over their network infrastructure, has grown rapidly in the past five years. Many areas of growth in the telecommunications market have triggered this development within the OSS market. For many OSS vendors, the expansion of the competitive carrier market has been a driving force in their business strategies.

Since the Telecommunications Act of 1996 enabled local telecom competition, the Competitive Local Exchange Carrier (CLEC) segment has been devoting resources to acquiring equipment and resources to build out carriers’ networks and increase the number of services the carriers can provide. Many carriers, especially the “facilities-based” carriers who own their own switches and/or network capacity, have often required OSS systems to aid in effectively providing services such as ordering, provisioning of service, billing, and customer care. Thus, CLECs’ demand for OSS systems have grown with the rapid growth of the CLEC industry, which has, in turn, benefited the OSS industry as a whole.

In the past four to six months, however, the CLECs have been experiencing a sharp economic downturn. This decline has progressed even more rapidly than the initial buildout of the CLECs. Many CLECs discovered that their funding and customer base cannot support their operational and network buildout costs and were forced to declare bankruptcy. As a result, venture capital funding for the CLEC industry has become less available, leaving yet more carriers in a struggle to keep their businesses afloat. Stocks of public CLECs have sunk considerably. The entire CLEC industry has moved into a state of transition.

In response, many analysts within the telecom community have referred to this period as a “Darwinian” process, during which the strongest CLECs will survive. However, during this process, it is thought that still more CLECs will go bankrupt, go out of business, or be acquired by other CLECs, decreasing the market share of those who sell to that market. The overall effect of the CLEC market downturn on the vendors of OSS solutions has not been studied. Some vendors, such as MetaSolv, are doing very well, announcing another quarter of successful revenue at the end of 2000. Other vendors, such as Lucent, owner of billing OSS company Kenan, did not meet their numbers in the last quarter of 2000.

OSS solutions, however, allow a CLEC to provision services effectively, add new and revenue-producing services, and increase customer satisfaction while reducing churn. These benefits of OSS will increase a CLEC’s market strength even during a time of market uncertainties.

As well, as telecommunications moves into an era of packet-based network technology instead of, or in addition to, traditional circuit-based networks, some CLECs may choose to migrate at least parts of their networks to packet-switched technology. New OSS will be needed to support this expanding network technology.

A number of new OSS vendors are emerging, providing products that allow providers to offer a new range of services over these next-generation networks. These NGN OSS vendors focus on enabling carriers to offer services over next-generation network technologies such as ATM, frame relay, DSL, cable modem, and IP. Some of these vendors are heavily invested in the CLEC market, and some less so, focusing on other parts of telecommunications like networking companies or on other industries entirely. However, many do have an appreciable CLEC customer base, and many others are approaching the market, if with some caution, as CLECs move forward with plans to implement next-generation networks and services.

The opportunity to offer these new types of services through these next-generation OSS systems will provide an important growth opportunity for the surviving CLECs. However, the services that can be provided through NGN OSS are currently very data-centric, whereas the majority of CLECs are currently focused on providing voice-centric services. The future of NGN OSS providers will depend in part on whether CLECs will start branching out to offer these new “value added” data-centric services.

OSS Vendors and the CLEC Market Shift

The rapid shift in the CLEC (Competitive Local Exchange Provider) market, where many CLECs lost plans, leaves the third-party OSS (Operations Support System) vendors who market to the CLECs in an uncomfortable position. Is this a market still worthwhile to them, even in the midst of this currently shaky ground? InfoTech undertook a study to understand the state of the market. Objectives included determining whether rumors about CLEC disruption were accurate, understanding how the disruptors were being manifested, and assessing the opportunity for OSS vendors.

Eighty-five CLECs and OSS vendors were interviewed ....

1. Executive Summary

• CLEC Expectations of OSS Vendors

2. Introduction and Study Methodology

• Objectives


• Research Methodology

3. OSS Vendor Market

• Operations Support Systems: An Overview


• Types of OSS


• OSS Vendors


• The OSS Vendors and the CLECs

4. Research Results

• Evidence of Severe Disruption in CLEC Operations


• Services


• OSS Solutions: Current and Planned


• OSS Pricing Plan Preferences


• OSS Solutions: Reasons for Implementation


• Benefits of OSS Solutions


• Dissatisfaction With OSS Solutions

4. CLEC OSS Needs Analysis

• CLEC Strategies Identified in Research Results


• Data Services and Next-Generation Networks


• Provisioning


• Implementation of OSS solutions


• OSS to aid CLEC Partnerships/Acquisitions


• Network/Service Expansion and the Cable Companies


• Customer Relationships

5. CLEC OSS Market Forecast, 2000-2004

• Demand Forecast


• CLEC Purchasing Plans for Specific Solutions


• Market Forecast for Service Provisioning and Activation
  OSS


• Forecast for Network Inventory/Monitoring OSS


• OSS Integration Software Forecast


• Customer Relationship Management


• Billing OSS

6. CLEC OSS Requirements

• CLEC Expectations of OSS Vendors


• Positioning for the Future

7. Vendor Profiles

• MetaSolv


• CoManage


• Quintessent


• GuideComm


• Vitria


• Granite Systems


• Kenan (Lucent Software


• Products Group)


• DSET Corporation


• AI Metrix

8. CLEC Case Study

• Covad Communications

9. Appendix: The CLEC Market

• The Evolution of the CLEC market


• The CLEC Market Downturn