The UMC outside the UMC success then failure and longevity

I think this part of the UMC story is interesting. If you go back to Q2 1998, you will find that AFC lost a lot of its stock value on a miss based on issues at GTE and China. The GTE issue has a happy ending in FiOS. China and the rest of the UMC Internationally is a different story. I need to note right here that Canada was part of the US in this conversation. The reason is that Canada uses the same transmission standards as the US so products work on both sides of the border. The same is not true in Mexico nor anywhere else of any significance.

I wrote earlier that the UMC was actually started for business in the Balkans, but the first systems were installed in Mexico. If anybody stops by Enphase, ask Martin Fornage about his visit to that first system in Mexico. You will hear some funny stories.

In most places outside the US, the Digital Loop Carrier (DLC) model of deployment was not used. There were some exceptions, mostly based around which companies had big influences with carriers. South Africa, Venezuela and the PRC all used DLCs. Most other countries were based on the European model of lots of smaller switches. This made the business very difficult. There were not DLC standards nor was there a product category to fit into.

But there was one thing going for us: Privatization. Many national carriers wanted to become private companies. To do so, they had to obtain certain “teledensities”. By this, it was how many phones per 100 homes were deployed. In the first world, this was not an issue. In developing markets, it was a big deal. We could sell UMCs to put phones in apartment buildings fed by existing copper or over newly laid fiber. So, telcos could rapidly meet their Privatization goals. This drove a lot of business – the PRC at the peak was $50M/year.

There was some technical reasons that AFC did well in this business. First, it used programmable parts to make its Plain Old Telephone System (POTS) cards. This meant in most cases we could tweak some software and occasionally some minor hardware to make systems work for people. Second, the UMC could be oversubscribed no matter where it was. This meant that you could hang more than 30 phones off an E1. Again, more phones with less equipment. Together this meant we could rapidly make systems that met a technical need and they could be deployed relatively cheaply. Lots of countries liked the model including places like Brazil and Indonesia.

Once the emphasis switched to wireless the impetus to deploy these systems went away and slowly the International business declined to really a few countries that were long time customers: The C&W properties in the Carribean, South Africa, Yemen, and Japan. As technology moved forward, these all slowly declined from about 2001 on with one exception. That is Japan.

I think we could argue that there was never a larger source of consternation than the long standing relationship between AFC (then Tellabs), Totsu-Soken and NTT. I think nobody is greatly happy about how that business happened or has stayed happening. The reason it still is the determination of a few people to keep it going. The UMC does some rather odd jobs for NTT. Definitely not mainstream and nobody in their right mind would go make the product for that market now. But since it exists, nobody can figure out how to get rid of it. So, it plods along and handles jobs that nothing else can anymore.

Let’s recap. AFC stumbled into a happy market circumstance and was able to capitalize on it. Once that circumstance went away, the market did as well over time. Was this market milked correctly? Probably not, but in the grand scheme of things it mattered little. The ultimate fate of the UMC was determined elsewhere. Next week, I should get to that.

Jim Sackman
FocalPoint Business Coaching
http://www.jimsackman.focalpointcoaching.com/
We focus on your business – Time, Team, Money, Exit
Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis

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