Following a 20-plus year in the wireless industry, one that included stints at the former Flarion Technologies, now Qualcomm, Ray Dolan took the reins of Sonus Networks in 2010 with hopes of steering the company back onto solid ground.
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Since taking over as CEO, the vendor that became synonymous with TDM/IP voice gateways is confident that it can gain a larger foothold in two other segments: Session Border Controllers (SBCs) and the enterprise market. FierceTelecom Editor Sean Buckley caught up with Dolan recently to talk about the new directions for the vendor.
FierceTelecom: Ray, you came to Sonus in 2010 after a long stint with Qualcomm and, of course, Flarion. To start, can you talk about the almost two years on the job as CEO?
Ray Dolan: I got word of an opportunity to basically turn Sonus around. This is a company that had a long history of transforming TDM networks to IP mostly in voice. It's had a great company with a lot of innovation, Boston-based, and tied into a number of the tier one voice networks around the world, but then paused and got caught up in the turmoil of the telecom industry. It just needed to be looked at and focused on and let the strategy evolve into something equally innovative to the initial chapter of the company. That's what we have really tried to do. We have reinvigorated the team. Growing out of the VoIP world, we're also moving beyond the service provider space and into the enterprise space with our recent launch of our Session Border Controller (SBC) 5100. That's the story in a nutshell.
Also, we have no debt and a great balance sheet with $380 million in cash. We have time to think things through and the balance sheet to give the tier ones the confidence that we can innovate and get back to our roots and help them face some of their challenges. The move to the cloud is a huge opportunity as well as the move to all IP and monetizing video amongst the data stream. There's just a ton of challenges that remain out there for the service providers that we'll have in some shape or form play a role in.
FT: So the main goals right now is to reinvigorate Sonus today and help it expand its presence in new segments like SBCs and the enterprise?
RD: You could consider the SBC segment a natural extension of the gateway market because the gateways move TDM to IP and the SBC forms the border control and security device on the edge of the IP network. As IP became more predominant, SBCs started to grow, and we entered that category back in 2007 by putting a software upgrade on our existing gateway, which is the flagship product for the company, and becoming a hybrid gateway SBC. The market was growing fast and when others entered the market singularly focused and established early markets share in the SBC category. We launched an appliance-based product, which is called the SBC 5200 when I joined in October 2010 which is starting to get traction in the industry. The 5100 we recently launched is a derivative of the SBC 5200 as a way to accelerate our focus on the enterprise, which is complementary to our focus on the service provider segment. The goal with the 5100 was also to improve the simplicity for the enterprise and make it easily sellable through the channel, including either a Value Added Reseller (VAR) or the service provider who is selling managed, cloud-based Unified Communications (UC) to the enterprise.
FT: Let's talk about the enterprise strategy and how you can use the service provider as a sales channel?
RD: We see a tremendous use of SBCs inside the service provider network on the border with others and on the edge of the networks for access. On the premises for the enterprises as they move to IP, particularly SIP. Now, as they're moving apps to the cloud and going beyond SIP trunking for other things besides cost reduction and for IP services and Unified Communications, the SBC either on premise or hosted somewhere in the carrier service provider network is becoming a major network element to drive that growth. Whether it's on premise or not, you'll see a number of cloud models: hosted, non-hosted, private, public, multi-tenant and single-tenant. There could be any number of combinations of these models but the SBC generally is the access device where the applications will live.
FT: While Sonus has been known well in the service provider space, you are now driving into the enterprise market. Can you describe what's motivating your move there?
RD: There are a couple of things. One is the addressable market. The SBC category is forecast to grow from about $600 million this year to almost $1 billion by 2015. That's a big addressable market. About two-thirds of it is in the service provider market and one-third is in the enterprise space, so if you don't go to after both sides you're leaving a lot of money on the table. Two, our design point has been up till this point has been almost exclusively service provider-centric. The great news is we have great traction there and our initial success has been good there, but the enterprise opens up another third of the market and is growing so fast that my guess is it will be half of the market in three years. If you look three years out, not going after the enterprise segment leaves half the market unaddressed. The other trend we believe in is service providers are going after a business model of a managed cloud-based service via SIP trunking, and when they do that there's a tight coupling about what lives on premise and what lives in their networks.
FT: There are a lot of definitions and hype about the cloud, but what is the true opportunity from Sonus' point of view?
RD: It's complicated, but it's almost all upside. I think the principal drivers are the following: productivity inside the workforce; the desire to be more intimate with customers; and the desire to get closer to the supply chain. All of that will make networking complex if they don't move applications to the cloud and secure it. Some will have such high needs for security that they'll stay private for a long time. Others will have enough trust and confidence that they will use the leverage the service provider cloud. You'll see all of the models coexist. My view is the cloud will be driven by three trends: business productivity; mobility of the workforce; and the desire for large multinational corporations to put their apps in the cloud and 24x7 enable their employees access to them anytime instead of having them living inside the physical premise or inside a firewall. Those trends are pretty dominant. I think there's an opportunity for service providers to go beyond their prior offerings of selling an on-premise PBX connected to T1 to selling a real managed service where they manage QoS depending on what the app is or who the subscriber is. Understanding IP, understanding SIP, knowing security, and being as a trusted supplier to tier ones are assets that allow Sonus to play in that space.
FT: Earlier you mentioned SIP trunking. With a still large embedded base of TDM trunking out there, how big of an opportunity is this?
RD: SIP is an enabling protocol for that entire service creation layer. I think it's very, very early days and it hard to tell if it has five or 20 percent penetration. Even if any of those numbers are right we have a long way to go for it to catch on and be the enabler for all the value that's created above that protocol. I think SIP trunking is huge and when it becomes a de facto standard it's a lot like the fax machine where not having SIP-enabled services will make it harder to be part of large supply chains. I think it is already a catalyst in North America and less in Asia and Europe, but it will accelerate a global phenomenon in the next dozen years. With that as a catalyst it's going to add to the momentum that's in the cloud and I think you're going to see "consumerization" and "mobilization" of the workforce. This is the first time ever that a major transition in IT or telecom was invented in the consumer market and being backfilled into the enterprise. It's usually the other way around.
FT: Okay, so what you're saying is that the Bring Your Own Device (BYOD) trend is becoming reality. How can Sonus help enterprises and service providers manage this?
RD: That's the term we use. As people bring in their own devices into work, the IT manager or CIO is saying a few things: you've already paid for it and the consumer market is driving down the price so that's wonderful. There's a big economic benefit if they leverage what people bring in and there's a big capability that's resonating with all the horsepower they are carrying with them, but the problem is they are outside of the logical architectures of the current telecom systems. This means that the SIP and IMS-like technologies that grew up in the mobile world will start coming into the enterprise and it will "mobilize" and "consumerize" the enterprise. When that happens there are good opportunities for the SBCs to be access device on the premise on top of which a lot of further developments occur. This is more than an aspiration for us. Our guidance for the year was to have 25-30 percent of our revenue be SBC-related revenue. It was an aspiration 18 months ago, but now it's a fact we're a strong second in the SBC market. Given the fact that the rules are constantly changing these are some of the levers we plan to use to address share and provide thought leadership going forward.
FT: What do you think sets Sonus apart from the pack in the SBC market?
RD: Basically, it falls into two areas: scale and policy. As the apps become more complex, you're seeing them needing to stay at the total rate of capacity and that's something we can use as a competitive advantage. Not only do we scale in the box but across the box and across the network because that's how we developed our gateway around a centralized policy implementation. It allows people who view SBCs as a network of IP boxes as opposed to standalone boxes. That comes from both a Operations Administration and Maintenance (OAM) as well as policy and routing engines perspective and how things are routed in real time. Our PSX policy engine is a strategic weapon for us. As the category grows from single point boxes to a network our heritage is coming through in our product design and our product architecture.
FT: While it's clear you're expanding into other areas like SBCs and the enterprise markets, do you still see growth in the traditional gateway business? Is that starting decline?
RD: There's still a lot of work left to do to migrate from TDM to IP. From a revenue point of view, a lot of the developed market work is done. We've got into about a 10 percent decline in our core gateway product. It's a bit choppy. It's not a cliff, but understand about a third of our business is SBC and it's growing better than 50 percent per year. With those metrics of our core business in a slight decline and our new business in a very high growth mode we'll quickly become more SBC and our legacy business will become less of an issue.