IADs are an expensive undertaking
Integrated access devices have become the problem to their own solution. While IADs, or "eye-ads," are the enablers of voice-over-Digital Subscriber Line connections, they also cost so much that its hindering the deployment of VoDSL at all.
IADs run $800 to $1,500 per unit. Is that a problem? "You bet," one service provider says. "Make a business-model spreadsheet and play What if with the prices of IADs."
So what if IADs fell to $700 to $800 for business applications and about $200 for residential gateways? Vendors say carriers could slow customer churn and rake in revenue from value-added services.
"Carriers can derive so much more revenue from IADs than they can from a data-only product. Bundling the two together is attractive because it tends to stop some of the [customer churn] that happens when the market becomes competitive," says Greg Langdon, executive vice president of product strategy at Efficient Networks. Efficient is an IAD manufacturer that recently agreed to be acquired by Siemens.
Essentially, an IAD acts as a DSL modem and a data router, and also converts anywhere from four to 24 ports of voice traffic into packets, which can then traverse a single telephone wire from the customer to the carrier network. The first generation of these devices took the "Cisco [Systems] approach" to development: They were constructed from circuit boards, processors, software and casings designed for other uses.
The second generation, deployed today, took a similar approach. But this time, the components are better engineered for the purpose of converting voice traffic rather than data, contain more ports per unit and add a new twist: advanced applications. The advanced applications deliver value-added services beyond voice and data, such as virtual private networking and voice signal compression. But since these devices are still the sum of so many parts, the costs to the IAD companies of acquiring those parts along with a healthy markup mean a startling cost to the service provider or carrier that might implement that technology.
The cost of the IADs makes up one-third of the total cost in deploying a DSL network in the rural counties around Warsaw, Va., where Internet service provider Sylvan Information Systems is planning to offer VoDSL, in addition to the DSL service it supplies businesses today.
Kate Pillow, president of Sylvan, says her company is moving forward, despite the stifling costs. "Even in our small market, were looking at $750,000 that were going to spend on IADs to provide them to our customers. A degree of that you can pass on [to customers], but you cant pass all of that on and be competitive."
IAD equipment vendors, so numerous now that its difficult to list them all, argue that even if the prices are a little lofty now, the revenue generated by VoDSL is at least twice that of a vanilla DSL service.
"Phone service is less sexy than high-speed Internet, but for our customers, the revenue from their voice customers far exceeds the revenue from their data services," Efficients Langdon explains.
But Michael Trupiano, senior vice president and general manager of the Internet Equipment Group at IAD maker and recent Proxim acquisition Netopia, says theres a notion among companies providing complementary DSL technology that the IAD has to be cheap or free, which would force gear makers to bear the entire burden.
"Its a complex piece of hardware, these fully featured IADs," Trupiano says. "Nobodys really deployed them in volume yet, so theres no volume-driven cost models."
But vendors expect prices to fall when the third generation of IADs rolls out. These devices are expected to include more services and abilities, most of which will be integrated on a single chip, lowering the cost of manufacturing.
Most vendors agree the price of business IADs will fall to the $700 to $800 range with the new generation, but not much lower because the boxes will replace other costly equipment for the enterprise and provide higher revenue for the service provider. In the consumer space, so-called residential gateways are driving IAD prices down toward $200, about the cost of a typical DSL modem.
David Sanford, senior product line manager at Jetstream Communications, which manufactures both IADs and the VoDSL gateways that reside on the carriers networks, calls it the "siliconization" of the IAD. So, general processors, digital signal processors, modem communications, voice interfaces and value-added applications will run on a single slab of silicon.
Texas Instruments is one of those silicon providers. "TI is a $10 billion company, and IADs arent even on the radar screen," says Terry Riley, TIs director of business development.
"But that will change," Riley says. Chip powerhouses such as Broadcom, Intel and others have products for the space as well, so its all about to get extremely competitive.