Breaking Down the Telco Network By Cody Willard Special to TheStreet.com 6/18/01 11:11 AM ET

Yes, there's a glut of Cisco (CSCO:Nasdaq - news - commentary) products on the market. And undoubtedly, the collapse of so many competitive telecommunications companies will result in more inventory -- not just from Cisco, but from a lot of other telecom equipment vendors, too -- flooding the market.

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Although innovation can render older equipment obsolete and spur demand for new products, carriers just don't have a whole lot of technological incentive to upgrade their equipment, which compounds these inventory issues. Similar to the PC industry, where the benefits of upgrading your desktop from a Pentium III to a Pentium 4 just aren't compelling enough to spur much growth for PCs, part of the problem in the telecom equipment world is that there's just not a whole lot of reasons to upgrade from your existing router or switch to one decked out with the latest specs.

Some areas of the network are experiencing more innovation and technological advancement than others, so I think it's important to expand upon the segmentation of the network that I started last week, explaining the difference between enterprise equipment and more robust "core" equipment. In a later column, I'll tackle the questions of which areas are being advanced and who's doing the advancing.

If you work for a medium or large company, chances are that your company owns and maintains routers and switches that sit in your building. The equipment in your building is called customer premise equipment, or CPE, which is also known as enterprise equipment (indicated in red in the graphic). Because these switches and routers are purchased by your company's IT department and not by a carrier, demand for this equipment is not necessarily related to the state of the teleconomy.

Network Segments

Source: Teleconomist.com

From those routers and switches in your office building, your traffic flows over wires that are connected to a central office, or CO. A CO is a sort of major hub for all of the houses and offices near you. Inside the CO sits bigger and more robust routers and switches and a whole bunch of other equipment that enables you to access the public switched telephone network, or PSTN, the Internet or other networks. The wires and equipment that transport your traffic back and forth from your building to the CO are called access because it's here that you actually access the networks. (That's indicated in pink in the graphic.) These connections -- whether copper, coax or fiber -- are owned and maintained by a service provider, and, like the next two segments of the network, demand for anything access depends on the state of teleconomics.

Where the Focus Is

Later today, I'll have a column that addresses the teleconomic conditions and the companies focusing on each segment of the network.

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