Interview: Tarcisio Ribeiro of Tellabs

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Tellabs moving on from backhaul as operators’ focus changes to content

Operators are not making money from delivering content for companies such as Amazon, Apple and Google. Tarcisio Ribeiro of Tellabs believes his company can help 

 Tarcisio Ribeiro: Everybody’s making money but the operators.
Content providers will need to work with them  

The explosion in demand for mobile data has been good for Tellabs. As operators develop content services and cloud computing the future should be even brighter, says Tarcisio Ribeiro, the company’s vice president for Europe, the Middle East and Africa.
“We are a niche player,” he says: “We have always been in transport; we have always been in bandwidth management. These areas are becoming more important as data is more important.”
But the company’s real presence in mobile backhaul dates back only a few years — back to Mobile World Congress in Barcelona in 2006, when the company started to promote its belief in MPLS technology as the way to connect base stations into the core network.
“We had a very small booth in the basement, and nobody knew who we were,” recalls Ribeiro. “People couldn’t even find us.”
When they could, they were sceptical. “We were launching MPLS for data and people were still using SDH and PDH.” Tellabs was suggesting a solution that was different from what the industry used.
But the company persisted and it won a first contract from Telecom Italia. “The rest is history,” Ribeiro smiles. “Now we are market leader in mobile backhaul.” Other companies are now adopting MPLS, he says. “Every operator in the world.”
“We wanted to anticipate the problems that our customers would face — and now we want to do it again.” That’s why the company has been expanding. In December 2009 it took over WiChorus, a Californian start-up which makes systems for mobile packet core networks — something that will be increasingly important as operators move to 4G services, both LTE and WiMax.
“They initially developed a WiMax gateway and then they evolved to GSM. The problems we want to solve are twofold. Once the operator has solved the problem with wireless backhaul, which is a bottleneck for 3G, they have another problem. They can transport this huge amount of data, but they are not making money out of it. Everybody else is making money out of it.”
Even Global Telecoms Business makes money from its website, he smiles, “but the operator carrying the data doesn’t”. The same applies to companies such as Google: “Everybody’s making money but the operators.”

Bottleneck moving

The operators have to spend money to transmit the bandwidth “and that’s where we can help: our solution is much more scalable than solutions in the market today”, he says. “The bottleneck is moving from the access to the core.”
The next step in Tellabs’s plan is to help give operators awareness of what customers are doing. “They can tailor customer profiles according to their marketing plans so they can make money.”
He illustrates this with a vivid point. Historically volume was all: a customer using many minutes a day was seen as good. “Every minute, more money. It was linear,” says Ribeiro, who used to run Tellabs’s operations in Latin America, where he grew the business by over 75% in three years.
But in the data world it’s not as simple as that. Customers pay flat fees for data, clog up the network “and the operator is not making any more money”.
There is a need to differentiate users — not just heavy and light users. “There are heavy users who are not good. Some are using a lot of data for mission-critical applications, and that’s good, because they are generating revenue. They also talk a lot on the phone, and they roam, so the operator is getting data revenues from another country.”
The heavy college user is not good news, though: he turns on his computer, consumes a lot of data on BitTorrent and so on, but pays just a flat rate. “That is not a good user.”
So the answer is to throttle the traffic, he says. Allow the student bandwidth when it is available, “but when I run into a limitation I want to make sure that the precious resource on my network, which is bandwidth, goes to the business user who is roaming from Italy to the UK or from the UK to Russia, because I make more money that way than from the college kid”.
What, for example, if an operator were able to say how many music tracks were downloaded from a certain site? “You could go to that site and say how much revenue they generated and tell them you were going to start charging them a premium.” Or you could tell an e-book site “I am going to take x percent of every dollar that you make”.
And all this could be done without referring to the subscriber, “because the subscriber is not going to like this”, he says. “This is the ability we want to give to the operators, to give them some control over their network.”
But is anyone actually doing it yet? “Some operators in the US are engaging with this model.” Which ones? “Unfortunately I cannot tell you yet.” And, yes, “some” means more than one, he confirms. With Tellabs? Ribeiro nods.

Customer transparency

“This needs to be transparent to the customer. Operators are charging the application provider.” That’s because if operators start charging their end-customers $1 for every $5 of download, the customers will move to a different operator. “The operator that imposes a charge on the customer will be very short-lived. It will hurt their brands and their reputation.”
So it’s clear we’re talking about operators charging companies such as Amazon? “That’s correct.” Or iTunes? “Exactly.” Or YouTube? “Yes, because these providers, such as YouTube, iTunes, Amazon, don’t want to be blocked from doing business via any operator, because the operator is very valuable.”
Of course, there are some publicly know relationships — the Amazon Kindle, most prominently, uses Sprint in the US and AT&T for its international version. But now the iPad is arriving “and the interesting thing about the iPad is that it is not locked”, points out Ribeiro.
But what will that do to the market? “It depends on how the operators react,” he says. “First, the subscriber wins. This is great. I am a strong believer in free markets. The operator has a big challenge — how to avoid becoming a commodity and how to capture this value.”
So while a few years ago the concern was about backhaul, now the concern is changing, he adds. “They have another challenge to solve, and we’re trying to help them solve that now.”
The operators are potentially in a powerful position, as they are the gateway to the customers, “but they have to figure out how to use this”. None of them? “I have been having discussions with some operators,” he says — more recently with marketing people. “They are looking for ideas and they are interested in talking to Tellabs. They have this on their priorities.”
But wouldn’t content providers react by finding alternative routes to their customers? “Would they?” asks Ribeiro, who moved from Latin America to take over the European operation, which represents 28% of the revenue that Tellabs earns outside its North American base, with sales of $105 million in the first quarter of this year.

Kindles and iPads

“The more people you can reach, the higher the chance of making money. The number of wireless subscribers is continuing to grow. It looks as if is it not stopping — because people now have two phones, an iPad, a Kindle. It is not limited to the number of people in the world any more. It grows faster than printed media, than broadcast media, than fixed line media. I don’t think you want to avoid mobile operators.”
Content providers have to work with the mobile operators, he says. “If the mobile operator is successful, they will be successful. People like the mobility.”
Does that mean content providers are embracing the idea? “No, they will resist, of course,” says Ribeiro. “It’s one of those things that, resist as much as you can, at some point you will need to let go. You don’t want to lose revenues or profits to anyone.”
Content owners understand that operators need to provide a good subscriber experience. Subscribers will move on, so content providers need to work closely with operators. “Yes, I believe so.”
So, who so far understands this? Who has got it? “I like Apple,” says Ribeiro. “They understand what is important for the user. They have moved away from the traditional way this whole market was working — and they have focused on the user behaviour, how the user interacts, the whole ecosystem.”
This takes him back to the issue of backhaul. “Once we have enough backhaul capacity to offer good experience to the users, Apple wins, the operator wins and most important the subscriber wins.”
In addition, “Google is doing an amazing job”, he says, “in the whole ecosystem”, by attracting subscribers and then selling advertisements. Applications such as the translator are “breaking one of the huge barriers in communication”.
There are new apps coming along, such as Google Goggles — an image-based search: point the camera at a building or a person and you’ll get information. “I think they are doing an amazing job.”
But neither of those are operators. Any operators he particularly admires? That puts him in a difficult position, because they are customers. “Those I mention will be pleased and those I don’t mention will not be pleased. But the user is very emotional when he picks an operator. It’s like beer tasting, he says. If you hide the labels, people will often choose an unexpected brand.
“Mobile communications is the same thing. Mobile operation is all about the brand. Those I admire the most doing these big campaigns — advertising and sponsorship that appeal to their subscribers.”
Some are good at that, while others rely on prices. “But pricing schemes are so complex that it’s hard to compare.” Branding is key.
Operators have some important decisions to take over the next year or so: Ribeiro hopes to steer them in Tellabs’s way. GTB