Incumbent telephone companies in developed nations have a problem: their networks are not set up to handle today’s boom in digital data. Most existing networks were designed solely to carry the voice traffic that is now a diminishing part of the communications business.
Managing that problem is top of the agenda at many large communications carriers.1 Most are looking to the telecom- and data-networking equipment industry to deal with the challenge of converging data, voice, and video networks, and to help them make the transition from traditional circuit-switched networks to networks based on Internet technology (Exhibit 1).
(Technical terms printed in italics are defined in the glossary)
In response, the $250 billion equipment industry is consolidating as manufacturers jockey for position in the fast-evolving public network. Companies that have long prospered from providing equipment for traditional telecommunications are now scrambling to offer the cutting-edge devices that enable computers to talk to each other. Newcomers, meanwhile, are maneuvering to get their innovations into the public carrier market as quickly as possible. In 1998 alone, Northern Telecom of Canada (Nortel), North America’s second-largest equipment provider, snatched up Bay Networks, a leading maker of Internet protocol (IP) equipment, for more...