The Race to All-Packet

Posted: 1/2004

The Race to All-Packet
By Tara Seals

In the rush to be market leaders and prime movers, U.S. carriers  household name, big brand players  now are competing for top prize in a new competition: voice over IP. With every RBOC announcing imminent rollouts of VoIP services and the likes of AT&T Corp. and Qwest Communications International Inc. planning migrations to all-packet networks in the near future, it becomes apparent were standing on the brink of a new era. In the 60s, we had the Space Race. Now, we have the IP Derby.

Indeed, to get the jump, all the RBOCs are deploying VoIP services this year on their existing networks. BellSouth Corp. announced in October it will offer a bundled VoIP package that includes network transport, integration and equipment. SBC Communications Inc. announced it will deploy the PremierSERV hosted IP communications service for enterprise customers in the first quarter. The service is for enterprises wanting to take advantage of VoIP without making an equipment investment, and includes unified messaging, softphone and click-to-call functionality. Qwest has launched residential VoIP in Minnesota, with find me/follow me functionality and conference calling. Other states might follow. Verizon Communications Inc. will roll out a residential VoIP service for DSL customers in the first half of the year, with managed VoIP services with QoS to follow in the fourth quarter.

From a competitive standpoint, the Bells are concerned about staying in the race.

We are becoming one of them, said Qwest CEO Dick Notebaert during a conference call in November, them being cablecos and all-VoIP providers. Vonage Holdings Corp. Notebaert noted its better to add the service than risk losing those customers.

While VoIP is not an immediate threat to the RBOCs, their moves to embrace VoIP services indicate forward-looking strategies for customer retention and competitive prowess by ensuring they do not fall behind the adoption curve, says Joyce Lo, an analyst with Atlantic-ACM. It is worth noting ...these moves come at a time when cable companies  the competitors the RBOCs are most concerned about  are taking steps to deploy their own VoIP services. In other words, the RBOCs are hedging their bets.

And not just the RBOCs. AT&T, in a major new initiative, will launch VoIP consumer service in the top 100 U.S. markets this year, beginning in the first quarter. It also plans to aggressively market an expanded business suite.

Unlike many of our competitors, who are constrained by geographic reach or broadband access technologies, our voice over IP offer will be available in cities across America, to customers with different kinds of broadband access, says AT&T Chairman and CEO David Dorman.

The move to all-packet networks began last June when MCI announced it would transition its voice network to a common IP core using Nortel Networks Inc.s Succession softswitches and Passport packet voice gateways. The carrier expects to migrate 50 percent of its long-distance voice traffic to IP this year and all of it by 2005.

Last fall, Qwest announced a plan to replace older technology, consolidate offices and lay the groundwork for migration of its network to VoIP. In a three-year agreement with Lucent Technologies Inc., Qwest will integrate the 5E-XC switch technology into its local network and deploy a new intelligent media gateway that eventually will connect existing customers to VoIP networks.

This will position Qwest for smooth transition to softswitch control, and the transformation of its entire local network to VoIP, say the companies.

Meanwhile, PowerNet Global Communications announced it would build an 11-city IP-based voice network to deliver national long distance, using Veraz Networks ControlSwitch, an open softswitch platform, and 50,000 ports of Verazs I-Gate 4000 media gateways, to connect the new VoIP network to the traditional PSTN and to peer with carrier networks at key locations throughout the country. It plans to roll out VoIP service by the second quarter of 2004, according to Brian Lammers, PNGs marketing manager.

Finally, furthering its goal of operating a single, intelligent optical/photonic network, AT&T will spend $3 billion this year to move its global network completely to IP by 2005. The IXC is testing Siemens Information and Communication Networks Inc.s next-generation optical transport solution for use on high-capacity routes in its network. The move anticipates a long-range goal of photonic networking, in which information flows as pure particles of light, with no need to convert to electrons.

All of this amounts to an industry trend. Analyst firm IDC forecasts the total market for VoIP equipment to reach $15.1 billion by 2007, with a compound annual growth rate of 44 percent. Thats a lot of new capital expenditures from carriers still reeling from the bursting of the tech bubble.

And why are carriers looking to shelve those expensive, $5 million-a-pop heavy iron switches in favor of IP equipment? One reason is customer demand. The VoIP services market is expected to reach $11.3 billion by 2007, with a compound annual growth rate of 27.2 percent, according to Gartner Dataquest.

Companies like Vonage on the consumer side and CBeyond on the enterprise side both offer VoIP services and are disruptive by nature, says telecom analyst Jeff Kagan. They are helping to introduce new ideas to the marketplace. VoIP is still in its infancy and only addresses a very small percentage of customers, but there is enormous growth opportunity over the next decade.

Another reason to move to an all-IP network is simplified service delivery, which will cut cost and improve carriers bottom lines in the long term.

MCI plans to flatten its network and carry all applications and media on one IP pipe. This simplification will allow the company to become more efficient and will save 20 percent to 30 percent in operational expenditures, says Ricky Price, MCIs vice president of global network engineering.

Simplified application deployment also will make carriers more competitive, since new services can get to market more quickly. Lucent is taking this line in marketing the Accelerate portfolio that Qwest is deploying. Lucents Accelerate solutions put our customers on an `accelerated path to an all- IP network today, by rapidly enabling revenue-generating services that can help fund next-generation network builds, says Janet Davidson, president of Lucent Technologies Integrated Network Solutions. Our strategy is to ... speed time to revenue from new applications and services delivered via those networks, whether the applications are developed by Lucent or by our partners.

An IP network also makes for higher-margin service offerings, such as IP Centrex or PBXs, mobility solutions and voice, data and multimedia convergence services. And MCI plans to roll out new revenue-creating SIP applications as the end game to the carriers convergence strategy, says Price.

Whatever the end service result, VoIP certainly is the opening heat of the competition. Its to be determined if sure and steady will win the race.