Value creation,business innovation and next

generation netword

1 It is the strategy choose for China Netcom group to walk the road of value creation in new age

1.1 Analysis on development environment of domestic and foreign telecom industry

         At present, global telecom industry has been in stagnant status, and the whole industry has been in deep-adjustment stage. There are several major reasons listed as the following.

         1) Perdition of Internet foam has influenced the whole telecom industry;

         2) Loosen of telecom restrict has caused excessive competition and industry profit greatly decreasing;

         3) Blind investment and repeat constructing based on basic network result overmuch resource in backbone network;

         4) Buying 3G license makes many carriers in deep debt;

         5) Abandoned by capital market strong beaten telecom;

         6) Worldcom events has given the whole industry one disaster after another;

         Given the above reasons, and depression economic of Europe and America, lots of telecom magnates in the world have been in hot water of financial and managing, some even go bankrupt. All these signs show that the speed of development of global telecom market has been slow. And the wonderful time when global telecom industry increases in high-speed has gone if there is no new service increasing-point coming. And it is also hard for global telecom industry to completely recover in a short term. But as the slow recovery of world economy in the future years, it predicts that telecom market will also walk into a good direction. Although the increasing speed will not be as the same as that in past, it is estimated to be about seven percent, which will still be two to three times of world economy.

         Compare with turbulence of global telecom market, it is better in Asian and Pacific area. In 2001, Asia and Pacific area have become the largest telecom market in the world. Subscribers of fixed telephone and mobile have taken thirty-six percent of the world, while the number was only twenty-two percent before ten years. And in the future five years, the increasing speed of telecom industry in Asian and Pacific will still be at twelve to fifteen percent. Because of stable industry policy and demand of domestic large market, China telecom industry is a lighting point in the chill winter of global telecom industry. In 2002, income of national communication has grown 14.4% than last year. And there are 73 905 000 new telephone subscribers, and the total number of telephone subscriber has reached 421 000 000, to be top in the world. There are 34 051 000 new fixed telephone subscribers, and 214 000 000 in total. And 61 394 000 new mobile phone subscribers, and 207 000 000 in total. The popularization rate of na-tional telephone has increased to 33.74% in 2002 from 8.11% in 1997. The number of Chinese net people has reached 59 100, to be the second in the world. But as the system of China telecom reformed and China entered WTO, the competition of telecom becomes more and more severe, and industry profit also gets lower and lower. Most of new subscribers are low-end subscribers, which makes value of ARPU decrease. In addition, the fee is usually decreased. All these factors cause no gain with increasing quantity. According to information from related departments, value of ARPU of China fixed telephone has been gradually decreased. The value is ￥127.14 in 1999,￥95.18 in 2000, ￥73.3 in 2001, and ￥52 in the early half year of 2002. In addition, great change has taken place in architecture of business income of telecom carrier at present. Proportion of traditional voice has gradually decreased and growth rate has apparently slowed, while mobile and data communica-tion become new increasing points for telecom industry, whose growth rate is very fast. Proportion of income of China mobile communication has taken forty-seven percent in the total income of telecom. So fixed-network carrier will face that long-distance telephone will be distributed by IP telephone, and local fixed telephone is replaced by mobile telephone. In 2002, IP telephone took 61.6% market share of international long-distance telephone in China, and 52.9% of domestic long-distance telephone. And mobile telephone also takes 89.3% local call traffic, and distributes a large number of local fixed telephone service. Although data grows rapidly, it still takes a small share of total service income, and stays at developing stage, so it is hard to draw the large-scope increase of total income at short term. Telecom carrier is facing a severe test, and it needs understanding the situation, build up sense of crisis. But China strategy policy of 慖nformationization drives industrialization, and industrialization accelerates informationization?has created a well environment for the development of telecom industry, so we should strengthen confidence, and seek for developing with innovation.

1.2 Walk the road of value creation

          For a long time, telecom carrier is focusing on scope and growth during development, and many carriers went into hardship just because of blind expansion of scope. But now, telecom carriers pay more attention to the value and benefit of enterprise. And in capital market, capability of creating value has become a key factor to measure the performance of telecom carriers. So it requires an excellent and balanced performance in growth, operation efficiency and competition. If just one of them is neglected, the maximal value of enter-prise will be affected. It is hard to create a stable enterprise value only depending on potential of growth. Only unitary and balanced mode is used to promote performance in that three, could maximal enterprise value be created.

          At the earlier day of setup of China Netcom group, it brought forward general strategy goal, that is, 'Try to bring China Netcom group into a world leading communi-cation operation enterprise group with international inte-grated competition power in three to five years'. To reach this goal, China Netcom established a strategy with core of value creation, and determinates to walk a road with value creation. Future value of China Netcom will be decided by the integrated factors of growth, operation efficiency and competition power. So a series strategy measurements should be taken to ensure the balanced promote of these three factors to bring them into world leading place. In the future five years, China Netcom will increase the return of invest-ment capital, and guarantee a first-class operation efficiency through advantage conformity and effective configuration of enterprise resource. And increase competition power of en-terprise through setting management concept and business flow orientated in market, and focused on clients and de-pended on profit. Based on mechanism innovation and busi-ness innovation, we should pay attention to new chance and keep continual increase of performance to bring China Netcom group into a world leading communication enterprise with most value-created in China. China Netcom tries to enter world top 500 enterprises in five years, and its key perfor-mance index comes close to or reaches world first-class level to complete general strategy goal.

2 Business innovation is the key to implement value creation

         Business innovation could stimulate telecom consume, increase value of ARPU, create new business growth point and increase business income, which will promote growth capability of enterprise. And business innovation could also extend network potential, increase utilization of resource, reduce cost of operation, which will promote operation efficiency. In addition, business innovation could supply more commercioganic business for big clients to take advan-tage place in severe competition of big client market, which will promote competition power of enterprise. So business innovation is the key and efficient means to realize value creation. To realize business innovation, it needs orientating on market, enforcing study and analyzing on demands of market and clients, building a strict flow of development and spread of new business, and enforcing the power of devel-opment and spread of new business. Business innovation also needs the support of innovation on mechanism, management and technology of enterprise. Business innovation could be started from different directions. New business based on fixed-network could be developed, such as display call-in number, calling center, voice information service, only-one-code-needed, calling wait, short message of fixed-network, telephone chat, and so on. This will stimulate telephone consume, and dig the potential of fixed-network. And data and Internet business with the center of broadband could also be developed, such as network game, E-commerce, confer-ence TV, network TV, remote education and content man-agement service and so on. Service value chain of carrier could also be extended to develop system integration services. Although traditional voice is still the most important income resource of current telecom carrier, open Internet has ex-tended new space for developing new business, and could reduce the cost of operation. So business innovation should unite voice services and Internet service well to create a new growth point in the amalgamation of voice, data and multimedia. Only by conformity and innovation of business to create new services for clients, could carrier achieve more value and stronger competition power.

3 Next generation network is the necessary requirements of business innovation

         Development of new business needs the supports of next generation network, and network innovation is the base of business innovation. To meet the demand of development of new business, traditional voice telecom network should turn to next generation network merging voice network and data network to supply a solid base for business innovation.

3.1 Open and merge is the basic features of next generation network

         From broad sense, next generation network (NGN) is a wide concept and has a redundant means. There are differ-ent contents viewed from different angle and different layer. From the view of basic transmission layer, NGN is intelligent optical network. And from the view of switch layer, NGN is a packet route switch network with guarantee of QoS and direction of MPLS and Ipv6. Form the view of access layer, NGN is broad band wire and wireless access network. From the view of network control layer, NGN is software switch. And from the view of mobile communication, NGN is 3G and post-3G. From the view of business, NGN is a intelligent several business platform with voice, data and multimedia services. In general, NGN is the result of the development of lots of technologies.

          From the view of network architecture, layer and open architecture is the essential feature of NGN. NGN adopts layer architecture. Network is divided into several independent layers, that is, business layer, control layer, switch layer and transmission access layer. Business supplies open API interface to make business apart from calling control, and calling control apart from loading. Thus each layer could independently develop, and development of new business will not be limited by technology of lower layer, and business layer could be a open public platform to absorb more specialty services suppliers to create kinds of new businesses on it. Control layer of NGN is software switch, which is the collective of entity of several logical functions. Software switch could supply calling control, connection and part of service function of integrated services. It is the key equipment to push circuit-switch network turning to packet-switch networks and guarantee packet networks inheriting functions of traditional telephone intelligent network. Another feature of NGN is that media layer (or switch layer) adopts IP/ATM packet network replacing circuit-switch network.
Construction of NGN will concern basic technology, architecture, business management, and is the result of progress and conformity of several technologies. NGN should be able to support voice, data and multimedia communication. Merge of three networks should be the tendency of development of NGN. The development of IP technology and Internet has laid the foundation for technology of merge of three networks. Huge broadband resource introduced by the advance of optical transmission technology offers a solid and united basic transmission platform for merge of three networks. Architecture of NGN also presents a regulation for merge of three networks. The problem of merge of three networks has been gradually solved, and as the market competition is deepening and restricting policy is loosing, the tendency of merge of three networks is unavoidable. NGN is also the result of flat of telecom network. Traditional telecom carriers usually operate several-layer and several-type network at this stage. Tradi-tional carriers may own PSTN/IN, IP, ATM, SDH, and WDM networks, and each network is independent, which will cause high cost of maintenance, complex management of network, low network efficiency, inner competition and hard to develop new business. Track of development of technology is integrating advantages of each technology, and implement merge of each technology to flat network. For example, MPLS route switch layer is developed form the merge of IP and ATM, and unitive optical transmission layer is formed from the merge of SDH and WDM, and traditional ATM, SDH network who servers as independent network in core layer have gradually disappeared. Route switch layer will also merge with basic transmission layer in the future. At present, route switch layer and optical transmission layer are both inclining to utilize MPLS protocol as control face. After IP flexible route mechanism is introduced into optical transmission layer, static optical transmission network will grow as intelligent optical network. And IP/MPLS route switch network and intelligent optical network is the foundation of NGN. In access layer, integrated access of voice and data could be imple-mented by broadband access. Packet voice could be supplied by broadband access to escape depending on traditional TDM voice access. This is also an important feature of NGN.

          From the view of network equipment, equipment of NGN is always the merge of several technologies and has several functions. Boundary of traditional equipment of switch, transmission, data has been darker and darker. Each type of equipment is trying to introduce new functions to extend to other area for original application case. For example, original application of SDH is in TDM voice service area. And after introducing IP, Ethernet or ATM technology, it could develop as MSTP of new generation SDH to enter data service area. And the original application case of Ethernet equipment is in LAN environment and data services area. And when it refers to self-recovery loop of SDH to develop a RPR connection technology. And it could introduce MPLS functions to absorb advantage of ATM, and it could utilize emulational TDM to enter SDH services. New 10 Gbit/s Ethernet refers to some features of management and monitor of SDH. After merging feature of other technologies, Ethernet successfully enters area of access network and MAN area and expends to multi-services. Merge of functions of IP and ATM is the common feature of most new generation route switch equipment. Traditional PSTN switch also introduces ATM/IP technology and develops to merging point, which makes it not limited on voice, and support data and multimedia. Besides network equipment of network, subscriber terminal equipment is also walking into the direction of integration of functions.

3.2 Road for traditional telecom network to NGN

          The richest resource and competition dominance of traditional telecom carrier is network infrastructure (such as pipeline, optical fiber, copper fiber and machine room and so on), existing clients, redundant operating experience, complete operating system and telecom- class services. And under new conditions, traditional telecom carriers should push traditional telecom network to NGN to dominate in the competition. A long road needs to walk for telecom network to completely translate from traditional telephone network to NGN with core of software switch, and feature of packet network. And during this period, it will concern construction of new network, reconstruction of old network and how to deal with the relation between them.

         The key of evolution for traditional carrier network is the merge of voice network and data network. And voice business is still the major income of each carrier, and PSTN is the major network resource of many traditional carriers. And it is a basic tendency to develop IP business, and utilize IP network carrying voice. There are two different ways for the development of network according to the relation between PSTN and IP network, and how to rebuild PSTN.

         (1) One way is to make PSTN and IP network independently develop. It is based on reliability, complete of traditional voice network PSTN and wonderful architecture of end-to-end operation, maintenance and management. In addition, PSTN has accumulated rich experience in large-scale voice business, so its integrality should not be destroyed. Built a new IP network to supply IP business and not touch traditional voice network could not only keep integrality of traditional voice network but also just depend on new IP network to compete with new carriers on IP business to avoid tying by voice network. PSTN could communicate with IP network via media gateway and signaling gateway. And software switch could be gradually introduced to set up a united control layer and business layer for them. Although IP network and PSTN are relatively separated on network switch layer, they could be merged and unified on business layer through the control and management of software switch. Adopted this tactic, it should let more voice business carried by IP network or ATM network, as well as let PSTN free develop. It utilizes packet-network and software-switch based NGN to absorb more subscribers, and control the proper extension of PSTN. For example, long-distance voice services could gradually transfer from PSTN to ATM or IP packet network. It could also utilize broadband access to supply merged data and packet voice services to implement local packet voice services.

         (2) Another way is to upgrade exchanger of PSTN, which will reconstruct traditional PSTN exchanger as an integrated platform to supply data and voice service at the same time. PSTN exchanger will introduce packet switch module to support data services. This way implements the integration of network physical point to form a united voice and data network. And PSTN existing complete system of management and maintenance could be used into data services area. But the development of data network will be held down by PSTN, and the development of data services and voice services will be easily restricted by each other. In addition, the transfer from narrow-band PSTN exchanger to broadband and narrow-band integrated platform will be not smooth. So at present, data services is supplied not by reconstruction of PSTN, but by expending the capacity of PSTN exchanger, and STM-1 interface is directly introduced into exchanger to replace 2 Mbit/s relay interface. Merger of voice and data could also be implemented on access layer. In practice, carriers usually construct IP-based data new network and reconstruct, optimize and upgrade traditional PSTN at the same time, and then gradually implement the merge of them. The ultimate goal is to form a end-to-end packet network under the control of software switch. In one word, during evaluation of network and innovation, traditional carriers should not only protect its existing network, but also not refuse new technologies. They should find a specific evaluation way for their network according to their network actuality, business tendency, market orientation, competition situation and technology mature level.

          When China Netcom Group is solidifying ten provinces of north China, it is also actively extending market in south China. In ten provinces of north China, China Netcom is a traditional carrier, while south China it is a new telecom carrier. So it needs adopting different strategy for south and north on the development of network. In north of China, it should push traditional telecom network turn to NGN, while in south of China, technology innovation is adopted for network construction. It could adopt new technologies of NGN to optimize network architecture, reduce operating cost and improve competition capability according to technology mature level and economy in south market.

3.3 Business and application are the key for success of NGN

          Open architecture and software switch introduced are juste the foundation for the development of new business. And whether it could create a market-absorbed new business that traditional voice network could not is the key for success of network. Open architecture means strong reliability on protocol and standards, so whether each network equipment (including software switch, media gateway, signaling gateway, business platform, terminal and so on) could be complete complied with standards and protocol is another key. In addition, plan and management of software-switch network also needs farther study and more experience, and basic technologies in NGN, such as QoS and security of IP network also need improvement. In any case, the development of network should obey and server the general development strategy of enterprise to create more value for enterprise, not just seek for the advance of technology. The aim to develop NGN is to supply more absorbed new business for subscribers and enable network to create more value.

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Biography:

　　Tang Xiong-yan is now the deputy general manager of Corporate Development Dept of China Netcom Group,a fellow of Beijing Institute of Communications,and a guest professor of Beijing University of Posts and Telecommunications(BUPT).He received his Ph.D degree from BUPT in 1994.He was a post-doctoral fellow at Nanyang Technological University,Singapore from 1994 to 1996,and worked at Technical University of Berlin,Germany as an Alexander von Humboldt research fellow from 1996 to 1997.He joined Beijing Telecom Corporation in 1998 and was the deputy chief engineer before He left in 2002.His Professional fields include optical communications,IP/ATM networks,access networks,network planning and corporate strategy.He has published more than 60 technical papers.