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Interview: Rob Pullen of Tellabs

22 January 2010

As operators struggle to tune up their backhaul networks to deliver data to smartphone users, Tellabs CEO Rob Pullen believes they can save money by moving to ethernet connections

Read more: Tellabs mobile broadband mobile backhaul LTE WiMax 4G 3G

Rob Pullen

Rob Pullen: a mobile operator with 30,000 sites can save
$70 million in capex and $875 million in opex over five years
by using ethernet backhaul

Smartphone sales are up, and use of mobile data and video is up, and that’s a healthy user demand that is creating an opportunity for Tellabs, says CEO Rob Pullen.

Why? Because people are using them at a surprising rate, and operators’ resources are being stretched to deliver data down their networks.

“With handheld computers and smartphones, there’s a tsunami of data,” says Pullen. “Over 50% of operators’ bandwidth is being used just by smartphones.”

At the same time customers have suddenly discovered video conferencing, mainly with fixed terminals, “but mobile will arrive in a few years”, he warns. Again, there’s more strain on the networks that are struggling to deliver this service.

There are two main impacts, warns Pullen, an engineer who’s been with Tellabs for 25 years this year and has been CEO for almost two years: “There’s an impact on the backhaul from the radio tower to the internet, and on the mobile packet core to the subscriber.”

That means operators whose capacity is being stretched “have to invest more heavily in the network”, says Pullen. “The problem is that the bandwidth is increasing but prices are staying flat, so profit is being eroded. They’re trying to deliver a higher bandwidth with the same availability.”

He cites some information that AT&T has offered, suggesting that 4% of its iPhone customers are using 30% of the bandwidth.

Expensive links

Many mobile operators are still relying on traditional E1 or T1 fixed connections to their base stations, “which are expensive”, though some are now moving to ethernet connections. “Around 120 mobile operators are using our mobile ethernet backhaul,” says Pullen. “They’re saving around 50% on using E1 or T1.”

The savings will get even greater once operators start offering data-heavy LTE or WiMax services, he notes: “We calculate their savings then will be 60-90%.”

This means that operators can make substantial savings by choosing ethernet over E1/T1. Pullen offers a calculation that his team has made: “A mobile operator with 30,000 sites can save $70 million in capital expenditure,” he says, “and $875 million in operational costs over five years by using ethernet backhaul.”

Tellabs has worked with mobile networks for many years, traditionally with legacy TDM technology. “We saw the transition to higher bandwidths coming, and the trend to mobile internet and video, and we knew it would require a new technology,” says Pullen.

“It’s a global phenomenon,” he says, “though around the world there are different carriers in different phases.” Many are still planning the move from 2G to 3G, while 3G players are looking towards 4G technologies such as LTE and WiMax. “We have customers in 90 countries now,” he says, listing names such as AT&T, NTT, Telecom Italia, Verizon Wireless and Vodafone. “We are focussed on leadership in the mobile internet.”

Acquisition

But this ambition has meant that Tellabs has had to acquire skills from outside. In December 2009, the company completed a deal to buy WiChorus, a specialist in mobile packet core systems for LTE and WiMax networks. “We were trying to help mobile operators monetise the internet,” says Pullen. “They want to move from offering just bitpipes to more intelligent services.”

What sort of services? “Obviously one is mobile advertising, but there’s also content awareness. Operators want — with customers’ permission — to personalise content and services on the mobile internet.”

The idea is to perform “content aware analytics” of top internet sites — so that an operator can, for example, spot that a customer is in the Trafalgar Square area of London and recommend nearby restaurants. “Or you can be in a store, and use the barcodes to check the best prices,” he says.

“When the internet started it was more or less a search engine. Now it’s migrating to a community-oriented service, and the next trend is more personalised content.” If operators get it right, customers will be willing to pay, he homes.

“It’s a great opportunity for service providers to monetise content,” says Pullen: content that currently comes from Google, Yahoo!, Hulu and others.

Trust

But why is the service provider in such a great position? “Consumers have a high level of trust in service providers,” he notes. Mobile networks have had a high level of security and — so far — have not been susceptible to viruses and other attacks. “But as the phone becomes more like the computer, it could be prone to threats,” he warns. Service providers have a role in ensuring security levels are kept high.

The WiChorus purchase has allowed Tellabs to offer a platform that is “a 4G network element that can be used in a 3G network.” Ideal, he points out, for the fast analytic design that a content-aware architecture needs. “You have to identify the top 400 sites and how people use them.”

This acquisition — priced at $165 million — is helping to change Tellabs, which was founded 35 years ago to make echo suppressors for the telephone industry. “We’re much more of a software-oriented company,” says Pullen. “Some of our systems have three million lines of code.”

WiChorus has “an adjacency” to Tellabs business today, which is very different from those days of echo suppressors. “We’ll use the mobile packet core systems from WiChorus to optimise our backhaul systems.” For example, operators will be able to arrange to give different priorities to different traffic, “minimising peer-to-peer traffic, for example”.

WiMax already has some clever optimisation techniques that Tellabs proposes to make use of: traffic can be routed to less congested base stations, for example, so that traffic is optimised.

Tellabs is not biased one way or another in the great 4G rivalry between WiMax and LTE, though. “We’re already taking part in LTE trials, but I can’t name the customers — though they’re among the top 50 operators.”

And that’s why his calculation about the potential saving in backhaul cost is so important. “We work with about 120 mobile operators, and as they migrate to LTE they can save 60-90% of their capital expenditure.”

Cash in the bank

So what strategy is Pullen planning for Tellabs over the next few years? He certainly has the resources available for potential acquisitions: “We have $1 billion in cash and marketable securities, and no debt,” he says.

The company is meanwhile continuing to invest heavily in R&D, he says: 17% of sales, with R&D centres in Finland, Denmark, India and China as well as the US.

“Our strategy is to innovate with a focus on growth areas,” he says, listing Brazil, China, India, Russia and South Africa as particular target markets.

“One of our focus areas is business services,” says Pullen. For example, delivering video conferencing and cloud computing in the core of the public network.

Meanwhile there’s an opportunity to work with operators that still have frame relay and asynchronous transfer mode networks, helping them to migrate these old technologies to IP-based services. “We can help with that. How do you extend the life of highly profitable frame relay and ATM switches while at the same time migrating to where the world is going?”

Does he expect all frame relay and ATM kit to go? “Oh, no. There’ll still be frame relay and ATM in the network when I retire — and I’m a relatively young man.” According to the Tellabs website, he’s just 47, so that means there’s a lot of life in the legacy technologies yet.

In the short term, he wants Tellabs to become “more international and more profitable”, bringing down operational expenses. “We have a rock-solid balance sheet”, and the telecoms business “appears to be stabilising”, he says.

One area that Tellabs does not plan to enter is outsourcing-like managed services, says Pullen. “You can plan, build, optimise and operate,” but Tellabs confines its business to the first three of those, and not operations, “not in the short term”, he adds. “There is opportunity but we have not gone down that path yet.”

Robert Pullen

CEO and president of Tellabs

  • Educated at the University of Illinois in electronic engineering and physics, with an MBA Northwestern University with a focus on finance and marketing
  • Joined Tellabs in January 1985 as an electrical engineer
  • Later senior vice president of the optical networking group
  • Senior vice president of North American sales from 2002 until late 2005
  • Then vice president and general manager of global services
  • CEO from February 2008




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