Metaswitch Networks - on a global path to solve the innovation gap
August 2, 2010		Email this page

Interview with Steve Gleave, Vice President, Marketing, Carrier Systems Division

Introduction

Metaswitch Networks, a privately held company founded in 1981 and headquartered in Enfield in the UK, is a provider of carrier systems and software solutions designed to support the migration of communications networks to open, packet-based architectures.

The company has approximately 500 staff and operates under three divisions: the Carrier Systems Division (CSD), supplying session control, media gateway and application/feature server solutions; the Network Technologies Division (NTD), a developer of portable software components for use by communications equipment manufacturers; and the Service Broker Division, created following Metaswitch's recent acquisition of AppTrigger.

Metaswitch markets its products worldwide, with the Carrier Systems Division counting among its customers AT&T, BT and Sprint as well as numerous Tier 2/3 service providers, and the Network Technologies unit supplying vendors including Alcatel-Lucent, Cisco, Ericsson, Huawei and Nokia Siemens Networks.

Recent history

Metaswitch changed its name from Data Connection to Metaswitch Networks in October 2009. As the Metaswitch brand, established around ten years ago, had become the most visible part of the company it was deemed appropriate to adopt the name. What was previously Data Connection has now been named the Network Technologies Division.

Metaswitch is a private company and VC firm Sequoia Capital, based in Silicon Valley, and private equity company Francisco Partners made an investment in exchange for a tranche in Metaswitch in January 2008. The company's Employee Benefit Trust remains a major stakeholder.

Mr. Gleave remarked that Metaswitch has grown its revenue and profit every year since its inception around 30 years ago, which is a significant achievement for any company.

In February 2010 board member Kevin DeNuccio, who previously served with companies including Redback Networks, Cisco and Bell Atlantic, was appointed CEO of Metaswitch, while the incumbent John Lazar became Chairman of the board.

Mr. Gleave noted that Kevin DeNuccio is a well-known figure in the industry and is considered the type of person who could lead the company to a possible future IPO. DeNuccio has set out to achieve growth through investing in products, acquiring assets and expanding the company's position globally by addressing a perceived 'innovation gap' in the market for IP-based voice delivery solutions,

"Kevin has brought a new perspective and energy to Metaswitch. When he joined the company he devoted considerable time to working with former CEO John Lazar and learning how the company works to ensure that existing capabilities and expertise were not lost. Metaswitch has a very valuable resource in staff who have spent their entire careers with the company, nevertheless, any company needs a refresh from time to time to bring in new industry connections and ideas".

Although Metaswitch is privately held, the company is transparent with regards to providing annual revenue and profit figures.

It was noted that Metaswitch invests around 30% of annual revenue in R&D, which compares with an average level in the high-tech sector of around 12-13%.

On the question of seeking a public listing, Mr. Gleave said that while such a move is not currently necessary or planned, it is a path that could be followed in the future. He pointed to a public listed status as offering advantages in terms of raising money, including funding acquisitions, and raising visibility in the industry.

AppTrigger acquisition

In March 2010 Metaswitch acquired Dallas-based AppTrigger, a provider of service broker solutions that sit between the application and network layers.

Mr. Gleave said the company's technology primarily enables new applications to be used over old, legacy networks and old applications to run on new, next generation networks,

"It is interesting to note that Metaswitch is a UK-based company that generates most of its revenue from and has around 30% of its staff in the U.S. While the company has a reputation as the leading provider of Class 4/5 replacement switches, its products are also relevant to mobile operators, even though it has no public history of selling into the mobile space. AppTrigger is based in Texas but does most of its business internationally and has some key mobile carriers as customers, notably Telefonica and Vodafone".

Specifically, AppTrigger supplies products that support interworking between SS7 and SIP in wireline networks and WIN, CAMEL and MAP protocols in mobile networks. The solutions enable customers to map Metaswitch applications into mobile as well as fixed line networks.

Mr. Gleave explained that Metaswitch's purchase of AppTrigger was aided by factors including a long-standing relationship between Kevin DeNuccio and the company's CEO, Chris Todd, and the close fit and similar cultures of the two companies.

Also AppTrigger formed the Service Broker Forum to raise awareness of and promote the adoption of its solutions, demonstrating that it is a serious player in the industry.

Notably, at around the time Metaswitch bought AppTrigger, Amdocs and Oracle both acquired companies offering similar solutions.

Delivering core technology

In terms of market reach, Mr. Gleave said Metaswitch could reasonably claim to have products in almost every network in the world based on the fact that nearly every major telecom or datacom equipment vendor would have bought technology from NTD/Data Connection at some point, while the company also provides technology to Metaswitch for its VoIP solutions. Equipment vendor customers include Cisco and HP, among many others.

However Mr. Gleave emphasised that the relationship between NTD and Metaswitch must be carefully managed as NTD addresses competitors of Metaswitch, which may therefore be reluctant to buy from NTD,

"NTD operates as a separate unit and is not answerable to Metaswitch CSD with regards to its business. Clearly the division develops and offers products that are of no relevance to Metaswitch CSD, such as solutions for cloud computing systems, optical networking and Carrier Ethernet. Technology for VoIP systems as used by Metaswitch CSD is simply one area of interest for NTD".

NTD is important to Metaswitch, Mr. Gleave said, and while Metaswitch could survive without the division it has no wish or intention to separate the two operations.

From the customers' perspective, Mr. Gleave believes Metaswitch specifically is seen as a supplier of solutions for replacing Class 4/5 infrastructure that are scalable, feature-rich and can support services for SME customers and unified communications,

"Customers would probably generally say Metaswitch is a company that delivers products that work as promised. This may not sound like a huge achievement, but it's by no means always the case in this industry".

Software vs hardware

On the question of whether Metaswitch is primarily a software or a hardware supplier, Mr. Gleave responded that although much of what the company does is in software, it does provide complete solutions that include hardware.

Metaswitch utilises off-the-shelf hardware for gateway products, although the standard platforms are enhanced with the company's own software and in some cases hardware modifications.

Mr. Gleave said that Metaswitch is likely to continue to offer solutions comprising hardware value-enhanced with software, even if it is not a company that would go so far as to develop its own custom ASICs or unique platforms for specialised applications.

On the software side, the MetaSphere product is an application server providing a huge number of apps, the equal of anything currently available on the market according to Mr. Gleave. In IMS networks this product is an all-software solution that sits on a standard server platform operating over SIP connections.

Metaswitch also offers software supporting functionality such as call routing, network-based features such as hosted PBX and auto provisioning for SIP endpoints.

Supporting apps development

Aside from developing hardware and software, the company launched an innovator scheme for application development in April 2009, which now has over 1,000 independent software developer members. These members develop additional apps to the company's APIs.

Members of the scheme contribute software while Metaswitch has extended APIs and even widget code that enable apps to be applied for different environments with its products.

As Metaswitch cannot realistically control all elements in the chain it is actively promoting third party development of apps for its solutions.

The developer program targets service providers, not consumers, and is therefore tailored to the needs of telcos, which tend to be cautious with regards to new concepts and concerned mainly about the take up of new services and, if introduced, that the supporting systems work at scale.

Market focus

Metaswitch CSD's main market is the U.S. although it has won business in Latin America and is now expanding its sales there and beginning to move into Asia Pacific. The company also has a long established position with UK operator BT.

Metaswitch is primarily a supplier of Class 4/5 switch replacement solutions to Tier 2 and 3 service providers. Although this may seem a limited opportunity, as at some point the fixed line carriers will have replaced their Class 4/5 systems and are unlikely to upgrade frequently, Metaswitch also has relationships with large mobile carriers - some unannounced - and believes it has a lot to offer this market.

Discussing the company's historic focus on small and mid sized telcos, Mr. Gleave explained that these operators tended to be the ones that wanted what Metaswitch could offer, while Tier 1 carriers never took the decision to discard their Class 5 systems, preferring to develop their business in areas such as wireless and, in the case of Verizon, via the FiOS program,

"As a result, Metaswitch became a major and very successful supplier to Tier 2/3 U.S. service providers as it could enable them to save money and deliver advanced new services. The company lists eight of the top ten U.S. ILECs as customers, including Frontier, Windstream and Broadview, and in total has 500 carrier customers, mostly in the U.S. Metaswitch is deeply involved in this market and works closely with organisations such as state telecom associations and public utilities".

Metaswitch has also had success in penetrating the cable market in the U.S. and claims top ten cable operators as customers, although none of these have been announced yet.

The company counts customer service and support as a key attribute and driver of its success. Highlighting these capabilities, Mr. Gleave said that it is sometimes asked to support third party products by customers impressed with its level of support.

As evidence of its commitment, Metaswitch carries out a customer survey each year, the results of which are reported back at its annual user forum. Responses to this survey are taken very seriously.

Together with the acquired capabilities and customers of AppTrigger, and particularly that company's existing relationships with some major carriers, Metaswitch is now aiming to expand and build a presence globally and believes it can become a supplier to Tier 1 carriers worldwide.

Market environment

Metaswitch claims to be an innovative company that can help its customers to compete in a changing market. Mr. Gleave explained,

"Metaswitch customers, whether telcos or cable companies offering broadband connections, are operating in a very competitive environment. In addition there is now the question of who is the competition? It could be a cable company, new entrants such as Google and Skype, or even the government as a result of regulatory issues. In such circumstances the traditional service providers need to innovate to survive and at present Metaswitch believes there is what it terms an 'innovation gap' with regards to customers' business models, services on offer and organisations".

To address this perceived innovation gap Metaswitch aims to deliver advanced products that both work as advertised and are highly scalable for customers that may serve millions of users.

Acknowledging that the company is not always the first to market with a particular feature, Mr. Gleave commented that a supplier needs to carefully judge when to enter an existing market and when to demonstrate that it can innovate by launching something new.

However, he cited Metaswitch's recently introduced speech-to-text feature and conferencing application for smartphones as examples of products that were new in the market.

Regarding competition in the equipment market, Mr. Gleave said that among the major players Huawei is currently the leader on price, with the resulting pricing pressure affecting most vendors in the telecom industry, while Cisco still dominates in the IT sector and Ericsson is the largest supplier in the mobile space.

Among the smaller equipment suppliers, the very low level of VC funding available at present is seen to be accentuating problems relating to development of effective new solutions for Tier 2 and 3 service providers in particular, hence the 'innovation gap'.

Future

In summing up, Mr. Gleave noted that people have invested in Metaswitch based on its capabilities and expertise as well as its prospects for growth, and clearly have an interest in how it develops and in supporting that growth financially if necessary,

"Metaswitch has technology that big telcos, both wireline and wireless, can use. Once it starts to build a presence in this market sector it will be engaged with major customers that will guide the company to develop the technology they need, which in turn will be of use to the whole service provider sector. In this way the company can expand its presence in all of the market sectors it serves".

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