How the IP Telephony World Unfolds

By Ellen Muraskin  |  Posted 2004-06-28

How the IP Telephony World Unfolds

After spending four days among the true believers of IP telephony—virtually every vendor who spoke at Supercomm—I can envision a world in which telephone service over dial-up lines becomes as clear a sign of technical backwardness as dial-up Internet connectivity is today.

Voice over broadband data networks could become that pervasive. Market research says IP phones in the enterprise wont outnumber traditional TDM phones until 2009 or so, and that sounds right, but here are some of the signs and seers pointing in that direction at last weeks show in Chicago:

Vendor push to service providers: Many of the core exhibitors at Supercomm—those like Cisco Systems, Siemens Information and Communication Networks, Nortel Networks, Lucent Technologies and Alcatel—devoted the bulk of their booths to the shows primary market, which consists of service providers of various stripes: telecom carriers, cable companies and Internet service providers, and various combinations thereof. These exhibitors produce the core switches that carriers have long installed in their central offices to terminate subscriber lines, aggregate them into long-distance trunks and route calls. What they show the SPs now is very much about provisioning IP Centrex.

Vendor push to enterprises: These same exhibitors (except for Lucent, whose enterprise arm got detached and was renamed Avaya) are also the manufacturers of enterprise PBXs. These are essentially smaller versions of carrier switches. They terminate desktop phones, switch between them and pool the use of outgoing trunks to the wider world. These too are all being configured, at least optionally, for IP call transport and the multimedia, multisite communications enabled thereby.

To the enterprise customer, these PBXs are promoted as (among other things) new instruments of self-sufficiency, ridding companies of the need to call in telecom field service personnel every time new extensions must be added or changed. To the service provider, the manufacturers pitch the IP PBX as just one option to be offered to their customers on a continuum of self-sufficiency, ranging from pure IP Centrex (carrier-switched, customer only buys phones and service) to hosted (customers own PBX is located at and managed by the carrier) to managed (customers own PBX is located on the customer premises but is managed remotely by the carrier).

The vendors stress the consistency in end-user experience between carrier and enterprise versions of their platforms. I take this to mean that if I, as IT manager, decide to test the IP Centrex waters by tying in one branch offices worth of IP phones and then later buy my own softswitch and media gateway platform, I need not replace the phones or retrain my users.

Low barriers to entry for new VOIP carriers: "I worked for a CLEC [competitive local exchange carrier] startup years ago, and it was $30 million to wire up every city," said Denise Grey, chief marketing officer of Verso Technologies, in Atlanta. "You can buy a softswitch and your first application—say prepaid calling card long distance—from us, and get there for half a million dollars now." A long-distance resale arrangement with a wholesale carrier who has gateways in every major market—someone like Level 3 Communications—buys a network with reach to all non-IP phones.

Next Page: Why incumbent telcos can keep their local lines all to themselves.

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New end runs around incumbent local exchange carriers: The latest U.S. Solicitor Generals Office ruling upheld the incumbent local exchange carriers (ILECs) release from having to rent access to local lines at a discount. This gave the new competitors—and the MCIs, Sprints and AT&Ts—more reason than ever to circumvent TDM phone lines. Indeed, AT&T wasted no time after the ruling in announcing it will stop marketing local service in seven states.

Somebody please explain to me why the ILECs should be happy to have gotten what they wished for, because alternate routes to the customer are proliferating. Best publicized are wireless telephony and cable. Theres fiber-optic cable being laid by municipalities, who own the rights to dig up the streets, connect up their police, fire, schools and town offices, and incidentally become carriers to businesses. Theres a growing proliferation of Wi-Fi hot spots. Just this week the city of Rio Rancho, N.M., announced the launch of a citywide 802.11g hot-spot network, to ultimately cover 103 square miles, and, it said in its release, "offer unprecedented high-speed wireless data access to the Citys 58,000 residents and its hundreds of business, government and civic organizations."

Then theres WiMax, a fixed-wireless solution to cover 30 miles worth of subscribers per base station. "Just wait till WiMax gets here," says Grey, predicting more opportunities for competitive providers, and more customers for Verso.

Voice over Wi-Fi still has some bugs to work out. Click here to read more.

Enterprises become carriers: But the latest crop of competitive carriers may fare no better, in the long run, than the CLECs of the overheated late nineties. Peter Bernstein, president of Infonautics Consulting, of Ramsey, N.J., says the latest startups will founder because the incumbents will force the FCC to regulate them. Forced to pay federal and/or state taxes and universal service fees, they will lose their price advantage. I think that certainly—as with all things sold over the Web—the irrelevance of their switches physical location makes for very cutthroat competition among VOIP newcomers. This is particularly true in the BYOB (bring-your-own-broadband connection) model of VOIP being pitched to small businesses. The softswitch/server platform thats routing my IP calls and serving me my Web-configuration GUI could be anywhere.

But Bernsteins news for softswitch vendors is not bad. On the enterprise WAN, he points out, such regulation will be unenforceable. Regulators will not have rights or means to see into the packets of private data networks. So the softswitch and feature server companies (those that replicate and improve upon the calling features running on TDM switches) may make out by selling to multinational corporations. These companies will drive voice over their WAN to all their branch offices around the world, undetected.

And if theres no regulation? Multinationals could lease their IP networks to other companies, becoming carriers. The model has precedent: Equant, now a subsidiary of France Telecom, has a network originally formed for SITA (Societe Internationale de Telecommunications Aeronautiques), a group chartered by the United Nations back in 1949 to provide data networking for 11 international airlines.

Check out eWEEK.coms VOIP & Telephony Center at for the latest news, views and analysis on voice over IP and telephony.

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