AT&T: Domain 2.0 has upset vendors' business models, says Prabhu

AT&T's (NYSE: T) creation of the Domain 2.0 program, which is driven by the implementation of software-defined networks (SDN) and network functions virtualization (NFV), is causing the telecom equipment industry to rethink how they deliver products and services.

Speaking to investors during the Cowen and Company 44th Annual Technology, Media & Telecom Conference, Krish Prabhu, CTO of AT&T, said Domain 2.0 has driven vendors to focus their attention on how to deliver software-based solutions -- a radical change from the hardware-centric mentality that's existed for decades.

"Initially, there was some skepticism about what can be done in this new architecture," Prabhu said. "Part of the challenge for the vendors is that it certainly upset their business models because instead of buying boxes we were now going to buy software and buy it in smaller chunks and we've been vocal about having Open Source play a key role in the ecosystem."

Over the past year, AT&T has been adding more vendor partners to its Domain 2.0 system.

In late 2014, AT&T named a number of vendors including Brocade Communications Systems, Ciena and Cisco as the latest members to join its growing Domain 2.0 supplier program that's charged with driving the telco toward more of a cloud and software-driven network architecture.

Other members include Nokia, Amdocs, Ericsson (NASDAQ: ERIC), and Metaswitch Networks. Interestingly, some vendors like Cisco got invited to the Domain 2.0 party by acquiring other companies like Tail-F Systems.

The telco's initiative has driven all of its vendor partners to be on their toes, meaning they have to be able to quickly innovate and respond to any emerging issue. If they don't these vendors run the risk of being ousted by another new supplier.

"From a functionality standpoint and usage standpoint an existing vendor has more information that a new vendor coming in," Prabhu said. "But if they decide to stick to their existing business they run the risk of losing the business to a new vendor because the new vendor would be motivated to get the software we're looking for."

AT&T refers to these new startup vendors as "disruptors" that have rapidly ramped up how to provide solutions that fit into the telco's software-driven vision.

"We have several disruptors that have shown up in our network and over 12-18 months they have caught up with some of the network specific knowledge and provide us with network functions that are pretty good," Prabhu said. "Traditional vendors have seen this and have stepped up."

What AT&T gets out of this transition to software via SDN is simple: a way to address the constant growth of its wireless and wireline network traffic.

"The real problem we are solving is how can we handle the growth in traffic at the same capex and without this architecture it would be impossible to do that," Prabhu said. "I think everyone accepts that now."  

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