Marconi Corp. plc - Communications Equipment -  Category Main Page 

+44-20-7493-8484

New Century Park
P.O. Box 53
Coventry
Warwickshire CV3 1HJ
United Kingdom

www.marconi.com

Sales

$2.8 billion

Business Description 
We divide our Core activities into two main business types:

• Network Equipment, comprising optical networks, BBRS, access networks and other network equipment as well as OPP, which we no longer deem to be a core business and which we are currently managing for value.

• Network Services, comprising installation, commissioning and maintenance and valued added services.

Network Equipment:

We design and supply communications systems that transmit and switch voice, data and video traffic in predominantly public networks. Our network equipment products include optical networking systems, broadband and narrowband switches, routers and aggregation devices, wireless transmission systems and software management systems. In addition, we sell outside plant and power products for use in communications networks.

Aggregate revenues for all of our Network Equipment businesses for fiscal 2004 were £897 million, representing 61.7% of our total revenues, compared to £1,036 million, or 57.5% of total revenues, in fiscal 2003 and £1,691 million, or 54.1% of total revenues, in fiscal 2002.

Overview of the public network market and competition:

Historically, government-owned or government-regulated monopolies have operated public networks, which traditionally transmitted voice calls between users. Privatization and deregulation of public networks contributed to the entry of a large number of new companies into the public network market, offering new voice, data and video services.

The telecommunication vendor network markets in which we operate are highly competitive. Our principal competitors include Alcatel, Ciena, Cisco Systems, ECI Telecom, Ericsson, Fujitsu, Huawei Technologies, Lucent Technologies, NEC, Nortel Networks and Tellabs. The primary method of competition in the telecommunication network market is the widespread use of open bids for equipment purchases. Buyers use a combination of factors to evaluate bids, including price, technical compliance, and ability to deliver in the required timescale and provide after-sales support, financial stability and long-term viability. As the public and private network markets converge, other specialist companies in the information technology sector may also emerge as strong competitors. In addition, competitors are emerging in rapidly developing telecommunications markets such as China.

A typical telecommunication network can be portrayed as comprising three high-level layers. These are the service, switching and transport layers. Traffic in the network is moved around the network by equipment in the transport layer and routed to different points in the network by equipment in the switching layer. Equipment in the services layer defines and makes available the service associated with each particular class of network traffic, for example, voice, data or video services. Public networks, which comprise the three layers above, can typically be either access, metro or core networks, depending on the connections they establish. The access network typically connects an end user of a service to a network operator's local exchange, where switches are located. The core network usually connects an operator's major points of presence such as the routes between two cities. The metro network typically provides connections between the access and core networks such as between a major city and the various local exchanges or points of presence within a particular geographic region.

Optical Networks

Communications service providers primarily use three technologies, Synchronous Digital Hierarchy ("SDH"), Synchronous Optical Network ("SONET") and Dense Wavelength Division Multiplexing ("DWDM"), to transmit voice, data and video traffic over fiber optic communications networks. DWDM is a relatively new transmission technology that is used worldwide. SDH is the digital transmission standard that is used in most regions except North America and Japan. SONET is the predominant standard that is used in North America and Japan. We no longer develop and sell SONET products. Sales of our optical networks products constituted 36.8% of our total Network Equipment revenues in fiscal 2004 (2003, 42.4%; 2002, 43.8%). During the latter period, sales were predominantly in Europe and Asia.

We have focused our development on a comprehensive range of optical transmission equipment based on SDH and, more recently, DWDM technology.

• SDH: We were a pioneer of SDH technology following its introduction in the early 1990s and have continued to introduce next generation SDH products. We are a leading supplier of SDH transmission equipment within Europe and believe we have a tenable position in other markets including the Central and Latin American and Asia-Pacific regions.
Our add-drop multiplexers transport voice, data and video traffic streams over ring-based optical fiber networks to provide protection against network failures. Our line systems transport high-capacity voice, data and video traffic streams between major traffic centers. We also supply cross-connects to provide points of flexibility and restoration within an SDH network and to switch traffic streams from one transmission line to another. During fiscal year 2004, we launched a number of cost competitive next generation SDH products with greater functionality, for use both in core networks and for connecting residential and business customers to the core network. During fiscal year 2005 we are planning to enhance our next generation SDH products to enable customers' transport networks to handle more effectively data services as well as providing improved automated network resilience.

• DWDM: DWDM is the transmission of closely spaced signals through a single optical fiber using wavelengths each of which functions as a separate, independent signal, and allows the capacity of installed optical fiber to be increased substantially to meet future growth in demand for voice, data and video traffic capacity. Our DWDM equipment is complementary to our SDH equipment and enables service providers to increase significantly the bandwidth of installed fiber optic cabling while still using the existing network infrastructure.
We have already established what we believe is a tenable market position with our photonic line system, or PLx. In 2002 we launched a soliton-based, ultra-long-haul photonic line system, or "UPLx", that extended the distance that traffic can be transported before regeneration of the signal is required. We launched this product specifically for ultra and extended long-haul DWDM networks that will have much higher per fiber capacity than SDH or SONET networks. In 2003 we developed a "multi-haul' product that incorporated the functionality of our PLx and UPLx line systems onto a single converged platform capable of delivering solutions across a wide range of DWDM applications. In addition we plan to derive products from this platform capable of delivering shorter-range metro applications.

Because our DWDM equipment is complementary to our SDH equipment, we intend to take advantage of our positions in the SDH markets of Europe, Central and Latin America and Asia-Pacific to sell our DWDM products to our existing SDH customer base as well as to new customers that want to make a cost effective and simple increase in their available bandwidth.

Our network management system, or "ServiceOn", manages our transmission equipment. ServiceOn provides a broad range of management functions required by a network operator. It can be used by service providers to remotely re-configure their networks in accordance with changing traffic patterns. ServiceOn also provides network performance information and has fault detection capability to support the day-to-day operation of the network.

Our broad portfolio of optical networks products, coupled with scalability and ease of upgrade, enables us to sell optical networks to our customers which optimize network design and cost for those customers. Our focus on overall optical networks solutions, rather than single product solutions, enables us to design more cost effective networks and to integrate future product offerings over the life of frame contracts. We believe that our installed base of SDH equipment, deep customer relationships, superior knowledge of the incumbent network design, and interoperability of our products with that

Installed base of SDH equipment, are an important competitive advantage for both the existing and next generation SDH and DWDM product ranges.

Our objective is to maintain a leading position in the European optical networking markets and to increase market share in the Asia-Pacific region as well as Central and Latin America.

Broadband Routing and Switching

We have refocused our technical and commercial resources in our BBRS business towards customers requiring more resilient networking platforms of the sort found in carrier-class networks, namely government and military agencies, selected telecommunications service providers and other large corporations. Our BBRS business also continues to provide support services to our approximately 1,000 service providers, enterprise customers and the U.S. Federal Government. Our single largest customer of BBRS products is the U.S. Federal Government with whom we have enjoyed a long relationship. BBRS has a base of almost U.S.$1.5 billion in deployed network platforms and support services across various departments and agencies of the U.S. Federal Government.

Our BBRS business contributed approximately 14.5% of total Network Equipment revenues in fiscal 2004, approximately 13.7% in fiscal 2003 and approximately 12.4% in fiscal 2002. The BBRS business' sales are made predominantly in the North American market.

Our broadband routing and switching multiservice platforms, including the BXR-48000, the industry's highest-capacity switch router, combines the scalability and reliability to protect existing revenue streams with the flexibility to offer profitable, carrier class, next-generation IP, Ethernet, Third Generation ("3G") and packetised voice services. Designed for Core and Edge networks, our switch-routers, support the exceptionally high Quality of Service needed for today's real-time, mission-critical, IP-based applications.

Our products address the three principal packet-oriented protocols in use today:

• Asynchronous transfer mode, or ATM;

• Internet protocol, or IP; and

• Multi-protocol label switching, or MPLS, an emerging standard which provides greater predictability, quality of service (QoS) and differentiated service levels for IP-based data, voice and video communications when compared with services available over traditional, connectionless IP networks.
Our principal products comprise a range of multiservice switch-router devices that both establish the physical communication links between end points and determine the optimal route across the network. In addition, we also develop and sell a range of integrated access devices, or IADs, which are cost-effective solutions supporting converged voice, data and video transmissions over a single circuit. We have focused on the sale and support of our next-generation BXR-48000, which we believe provides the highest capacity of any multiservice switch currently available in the telecommunications industry, as well as our ASX-200BX, ASX-1000 and ASX-4000 range of multi-service switches.

We design our switch-router platforms to support communications traffic transmitted by ATM, IP and MPLS protocols as well as enable operators to build on their existing switching and routing infrastructures to continue to support their legacy services while offering the flexibility and scalability to roll-out next-generation IP, wireless and packet voice services. This approach also allows operators to reduce their capital investment and operating costs.

The ASX-4000 can switch at transmission speeds ranging from 10 to 40 gigabits per second ("Gbps") and can be positioned either within the core or at the edge of service provider networks or high-capacity private networks. The platform allows service providers to transport voice traffic over packet switched infrastructures such as ATM (Voice Telephony Over ATM ("VTOA")) or IP (Voice Over Internet Protocol ("VoIP")).

The BXR-48000 can operate at transmission speeds ranging from 40 Gbps to 480 Gbps. It can be configured as a very high capacity router or a very high capacity switch. Routers function in the IP (packet) networking domain, while switches typically operate in the traditional voice, frame relay and ATM domains. The BXR-48000 has been deployed by U.S. Federal Government agencies to carry mission critical encrypted video traffic. The military-grade capabilities demonstrated by the BXR-48000 are equally applicable for the voice, video, data and multiservice networks of service providers and large non-military institutions. During fiscal 2004 we have shipped a number of BXR-48000 products to both U.S. Federal Government entities as well as a leading European financial institution.

We also provide support services to customers of our BBRS products and report those revenues within our Network Services segment. The BBRS business service offerings range from routine technical support and assistance for our switch-routers, to dedicated, on-site project and program support for complex network environments.

Within the broadband switching and routing market, we believe that the IP router market will be a significant source of potential growth in the longer term due to the continued growth in IP traffic and the launch of new services such as VoIP. We note, however, that the introduction of these new services is dependent on the development of technologies that permit the "toll-grade" transmission, over IP, of voice and real-time multimedia services. In the meantime, concern from carriers and security sensitivity of private network operators over the security and reliability of their networks are expected to lead to continued growth in the ATM market.

We will continue to spend the majority of our research and development on multi-service products that support ATM, IP and MPLS protocols. In particular, our BBRS equipment is designed to enable carrier operators to address the divergent demands of today's difficult market environment. The market demands continued support for the ATM networks that transport today's services as well as providing a safe and viable migration path for the convergence of these networks with data oriented IP networks. To address the increasing requirements of our customers for IP services, we also intend to develop a platform for a range of IP services routers. This platform will be able to provide virtual private networks in the mission critical applications typically required by our customers. During 2004, we acquired, for immaterial consideration, the intellectual property and assets of Crescent Networks, which we consider will form the basis for this new platform. Our BBRS business is now part of our U.S. ring-fenced group but remains an important element of our core product and service offering.

Access Networks

Access equipment connects the end user to a service provider's switch or local exchange across what has been traditionally known as the "last mile" or "local loop". This is the physical wire, fiber or wireless link that runs from a subscriber's telephone set or other communications device to the service provider's local exchange. We design, manufacture, sell and support a range of access equipment, which maximizes the capabilities of physical transport media, including copper telephone lines, fiber optics, and both licensed and unlicensed wireless spectra. Our access systems activities have undergone significant rationalization and are now focused on leveraging our reputation and relationships in Europe to continue penetration of key customers with fixed wireless, access hub and voice software systems. Our Access business contributed approximately 25.3% of our total Network Equipment revenues in fiscal 2004, 24.9% in fiscal 2003 and 21.3% in fiscal 2002. During fiscal 2004, approximately 93% of the European Access business' sales were in Europe, Middle East and Africa ("EMEA") with Asia-Pacific ("APAC") and Central and Latin America ("CALA") representing the balance of revenues (2003, 84% EMEA and the balance in APAC and CALA).

Our Access Networks business comprises three main product groupings: Next Generation Broadband Access products, Fixed Wireless Access products and Mature Access products.

Our Next Generation Broadband Access products are our Access Hub and our SoftSwitch.

• Multi-service access node ("MSAN") known as Access Hub. These products are typically located within an operator's local exchange on one end of the subscriber loop providing broadband internet/ Digital Subscriber Line ("DSL") data and voice services. Our Access Hub, which can be configured as an advanced high density Digital Subscriber Line Access Multiplexer ("DSLAM"), also incorporates integrated ATM edge switching and IP multi-casting functionality. This enables it to perform as a broadband aggregator for multiple applications including voice, video and data services. This next-generation product offers high port densities and is very flexible. It is capable of delivering a wide range of services, including Plain Ordinary Telephone Service ("POTS"), Integrated Services Digital Network ("ISDN"), Asymmetric Digital Subscriber Line ("ADSL"), Symmetric Digital Subscriber Line ("SDSL") and Very High Bit-Rate Digital Subscriber Line ("VDSL") from dedicated line cards or in combinations from a single card. We launched our Access Hub platform in 2001and have already won several major frame contracts with British Telecom, Telecom Italia, Telekom Malaysia and Telkom (South Africa). Wind and Fastweb in Italy are also customers. During calendar 2003 we benefited from the increasingly rapid rollout of broadband services by operators. In this period according to independent research published by industry analyst firm RHK our share of the equipment market for the deployment of broadband DSL lines in Europe rose to approximately 9%.

• SoftSwitch: This next generation product is a system which builds on many of the features of the narrowband switch allowing network operators to combine their traditional telephony services with broadband multimedia and high-speed data services across a single broadband packet switched network. Our SoftSwitch is currently one of only a limited number of products available in the market offering full class 4 and class 5 capability as well as IP Centrex functionality. It can therefore address both public and private network applications and has been designed to allow customers significantly to reduce the cost of operating their networks. We have initial network deployments with Jersey Telecom and Kingston Communications and have been selected to support BT in its next generation Public Switched Telephone Networks (PSTN) transformation trial.

• Fixed Wireless: Our Mobile Digital Radio System ("MDRS") product family encompasses our point-to-point portfolio that offers long- and short-haul SDH transmission for services ranging from trunk networking, local access bypass and mobile network feeder applications. Our Mobile Digital Multipoint System ("MDMS") point-to-multi-point portfolio offers cost-effective broadband wireless solutions ranging from 2.4 Gigahertz ("Ghz") to 32 Ghz, depending on the country's frequency allocation, and supports subscriber voice and broadband data, using both standards-based and optimized techniques. Our radio planning and installation services enhance our ability to offer customized, cost-effective solutions for network operators and service providers. The main customers of our range of fixed wireless access products include Vodafone, O2 and E-Plus all in Germany.

• Mature Access Products: We continue to supply upgrades and extensions to our significant installed base of narrowband voice telephony systems, or "System X". The majority of this installed base is in the United Kingdom. The need for operators to adapt their networks to changing traffic patterns, predominantly caused by the growth in Internet traffic, has driven upgrades and extensions.
 
Outside Plant and Power

We are one of the major providers of outside plant and power products and services in North America. We are one of the major suppliers to Qwest, Verizon BellSouth, SBC, Sprint, AT&T and MCI. In addition, we are a supplier to Cingular, Telcel and U.S. Cellular. We currently have contracts to provide services to Bechtel in the building of wireless networks for AT&T and Cingular. Our OPP business contributed 17.3% of our total Network Equipment revenues in fiscal 2004, 13.5% in fiscal 2003 and 14.6% in fiscal 2002.

Our OPP business has three primary product lines:

• Outside Plant supplies connection, protection and enclosure products for the local loop, and is a supplier in enclosure design such as thermal management and analysis, water and dust intrusion, equipment packaging techniques and corrosion resistance. Although these are primarily passive hardware products, the trend of placing sensitive electronics outside the local exchange and closer to the subscriber requires increasingly sophisticated enclosures and static protection. The connection and protection products include distribution pedestals, building entrance terminals, cross connect terminals, cable television enclosure products, fiber optic splice enclosures, large electronic configuration cabinets, central office main distribution frames, heat management systems, power surge protection devices and connection blocks and terminals. The enclosure products are metal and plastic cabinets that house equipment such as power supplies, connection products, and digital and wireless transmission equipment.

• Power supplies power systems to service providers and telecommunications equipment manufacturers for the local loop, local exchange switching, wireless sites and other customer equipment such as computer networks. Our power products and systems include large power systems for local exchange applications, smaller cabinet power systems with "plug and play" flexibility, modular power systems, custom power subsystems sold to original equipment manufacturers ("OEMs"), DC distribution and DC-DC conversion systems and traditional ringing and signaling equipment. We market our family of power products under Vortex, Lorain and other brand names. We base them on a single integrated platform suitable for multiple wire-line and wireless applications. This microprocessor-based "plug and play" architecture allows for software-based configuration, management, monitoring and local and remote power system access that is easily expanded for system configuration and control.

• Services provides customers with software that allows for remote monitoring and control of power systems as well as complete program management support for communications systems deployment. Additionally, we provide a range of customer services, including site contract maintenance and breakdown service, spare parts provisioning, equipment depot repair, and training.
Our OPP business is now part of our U.S. ring-fenced group. OPP continues to be managed for value and ultimately for disposal.

Other Network Equipment businesses

Other Network Equipment businesses contributed 6.1% of our total Network Equipment revenues in fiscal 2004, 5.5% in fiscal 2003 and 7.7% in fiscal 2002. These comprise mainly the following businesses:

• Marconi Interactive Systems ("MIS"): MIS manufactures payphones and multimedia terminals which range from an indoor "desk top" phone through to sophisticated multimedia street terminals which have voice telephony and internet access capability. The business sells primarily to the major public network customers such as BT, Telecom Italia, Singtel, Telenor and Teledanmark.

• Network South Africa CPE: Our operations in South Africa include the design, manufacture and supply of a range of terminal products including telephones, Private Automatic Branch Exchange ("PABX") key-systems and public payphones.
Network Services:

Our Network Services activities comprise a broad range of support services to telecommunications operators and other providers of communication networks. We support both our own products as well as those of other vendors of network equipment.

Aggregate revenues for all our Network Services activities for fiscal 2004 were £556 million, or approximately 38.3% of our total revenues, compared to £743 million or approximately 41.3% of total revenues in fiscal 2003 and £969 million or approximately 31.0% of total revenues in fiscal 2002.

Overview of the Network Services market

As network operators have sought to reduce expenditures to cope with excess capacity, the requirements for maintenance and support have continued. In some cases, new opportunities have emerged as operators have sought to consolidate vendors and outsource additional services.

The nature of the network support services market means there are no dominant competitors in the provision of services to the public network market. However, major telecommunications vendors, such as Alcatel, Cisco, Ericsson, Lucent and Siemens are extending their service capabilities to offer total solutions in direct competition to us. In addition, major information technology and systems integrators, such as CSC, EDS and IBM, are now offering telecommunications solutions to their customers. Furthermore, independent service and support organizations such as Data and Telindus offer a broad portfolio of services.

The principal method of competition in this market is through open bidding. Services may also be sold as a part of, or linked to, equipment sales.

Service offerings

We provide, plan, build and operate support services to both fixed line and wireless network operators in many countries around the world. We target customers in the service provider, large-scale "carrier class" markets and in the government, transport and utilities sector. The services segment has two main sub-groupings:

Installation, Commissioning and Maintenance ("IC&M"):

Aggregate revenues for IC&M for fiscal 2004 were £291 million, representing 52.3% of our total Network Services revenues, compared to £368 million, or 49.5% of total Network Services revenues in fiscal 2003 and £528 million or 54.5% of total Network Services revenues in fiscal 2002. IC&M comprises the following activities:

• Customer Fulfillment: provides project management, installation and commissioning, field engineering support and customer training. The main markets are the United Kingdom, North America, Germany and Italy. The North American activities are associated with the OPP business.

• Managed Services: supports the installed base of our equipment worldwide through technical support, on-site maintenance and spares & repairs management. Managed services also remotely monitors, manages and supports customers' live networks. Services are provided from a global network of technical assistance centers ("TAC") and stock hubs and network operation centers ("NOC"). We operate thirteen TACs: five in the United States, two in the United Kingdom, two in the rest of Europe, two in Canada, and one in each of Japan and Australia, offering around-the-clock telephone assistance to customers. We also have five NOCs: one in each of Australia, Germany, Italy, the United Kingdom and the United States, for remote monitoring, fault diagnosis and network repair. We can support our own product range as well as products supplied by other communication equipment companies.

• Operational Support Systems: provides the software systems and systems integration services that enable operators to maximize the efficiency of their networks and the quality of the services they provide to customers.
The bulk of these services are related to the sale of our products, although we also have considerable experience of working with equipment from other vendors.

Value-Added Services ("VAS"):

Aggregate VAS revenues for fiscal 2004 were £265 million, representing 47.7% of our total Network Services revenues, compared to £375 million, or 50.5%, in fiscal 2003 and £441 million, or 45.5%, in fiscal 2002. VAS comprises the following activities:

• Integrated Systems: provides turnkey projects and plan, build and operate services for mainly non-telecommunications businesses in market sectors such as transportation and government. The projects involve planning, building, operating and supporting carrier-class telecommunications infrastructure and are generally long-term. The principal geographical markets are the United Kingdom, Germany and the Middle East.

• Wireless Services: provides radio frequency consulting services to both wireless and wireline network operators. These are primarily consulting and contractual services for site acquisition, mast design and construction, radio frequency cell site planning and network optimization. Our radio planning and installation services enhance our ability to offer customized, cost-effective solutions for network operators and service providers. In North America, our primary focus is on radio cell site planning and network optimization. In Europe our principal geographical markets are the United Kingdom, the Netherlands and Germany.

• Managed Services: provides customer support services associated with our BBRS equipment.
We have developed our services businesses over a number of years and it forms an important part of our portfolio of activities.

Within Integrated Systems, our key initiative is to expand out of our strong U.K. base into carefully selected overseas markets, such as Germany, through a combination of skills transfers and working with selected partners.

We intend to grow our Wireless Services business by targeting mobile network operators operating second generation ("2G") networks and planning 3G networks and equipment vendors providing turnkey projects to the mobile network operators who require service partners.
 

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