Chairing the session track on "Transitioning to the All-VoIP PSTN" at November's TeleStrategies VoIP World conference presented a great opportunity to do a sanity check on what's going on in the industry. With that, here are my new top 10 transitioning challenges for VoIP.
1 VoIP Isn't Cheaper
The No. 1 myth surrounding VoIP is that it's cheaper than the circuit-switched voice offered by today's ILECs. The reality is that new upstart VoIP providers push the cost of providing service off onto others. The customer pays for broadband and ISP access, and other service providers typically pay for or financially support E-911 (AT&T CallAdvantage does pay a 911 fee), high-cost service area subsidies via access charges, USF contributions, taxes and more. When all of the costs are allocated fairly between VoIP and circuit-switched services, VoIP service won't be cheaper.
2 Quality of Service
When the audience at VoIP World was polled on what they thought the toughest challenges were for VoIP, QoS topped the list. In addition, they were given the opportunity to vote on when the QoS problem would be solved: less than two years, two to five years, over five years and "don't know." QoS received "don't know" ratings.
Why? There are virtually no meaningful standards efforts or industry forums addressing intercarrier VoIP service issues. The current migration path will cause VoIP QoS to only get worse, because islands of VoIP networks will be interconnected by the PSTN. Delay or latency alone will be intolerable.
3 IP-TV to the Rescue? Not Yet!
Those who think that IP-TV will be the wave that buries circuit switch technology are in for a surprise. Their thinking goes like this: When ILECs offer IP-TV, they will integrate voice as well. The reality is that this integration is a long way off. Here's why.
First, consider what's happening in the ILEC space regarding video delivery, and then consider how voice is being delivered with this new video-enabled infrastructure. There are two broad options for ILEC video delivery. Option 1 is bring fiber close to the home (typically less than 6,000 feet away) and use DSL technology to enhance the loop to support video delivery. Option 2 is to bring fiber right to the premises and use passive optical network technology (BPON, EPON, GPON) to deliver video and voice.
OK, so what about voice service support? For Option 1 (video over copper), nothing changes regarding voice provisioning, voice rides over copper as an analog signal right to the fiber node, gets digitized and then moves on to a circuit switch. Yes, some ILECs, like SBC, are considering converting voice to IP at the premises, but this is not yet a given. The bottom line is that almost every ILEC deploying video services is doing it with copper, and the prime voice service is circuit-switched based. If customers want VoIP over broadband, they get it as a second service or "teenline."
What about FTTP and VoIP? Again, even with this IP-centric access solution, circuit switching wins out. The only business case where FTTP can stand alone is for new builds. And here, real estate developers often take the lead. If you look at the deployments to date, voice goes over fiber and is handed off to a circuit-switched based CLEC.
But what about Verizon? It plans to do FTTH. Wouldn't it replace circuit switching with softswitches and go all-VoIP? Probably not in the near term, and here is why. Consider that there are roughly 115 million households in the United States. Cable penetration is at 63 percent, satellite is at 21 percent, and the remaining 16 percent just watch broadcast television or don't have a TV. On the wildly optimistic side, say Verizon steals cable and satellite customers and becomes No. 2 in a market, with 25 percent of the pay TV market share. This would mean that 80 percent of their voice customers (less those lost to cable or wireless alternatives) would still be on circuit-switched service or Vonage-type service.
But again, you could say 20 percent of Verizon customers who are VoIP candidates would be enough to justify a national softswitch solution. Here's the problem with that argument. Before Verizon could offer video, it would likely have to get—like every other ILEC offering video to date—a local TV franchise. There are 30,000 franchising authorities in the United States, so roughly 7,500 franchises would be required by Verizon, given its geographic footprint. Note: It would likely have to build out an entire franchise area like cable companies were required to do, and not just the affluent neighborhoods. This will be a time-consuming process and would likely be accomplished one town at a time. For this reason, Verizon won't likely be offering video across all its territories or reaching 20 percent VoIP over FTTP penetration for a decade or more.
4 CALEA
The FCC will most likely mandate CALEA compliance for VoIP and publish guidelines to that effect in April 2005. For the most part, CALEA won't be the most daunting of challenges for VoIP, because the technology and product support is out there. However, non-facility-based VoIP providers may find the cost of compliance to be out of their reach.
5 E-911
There is no doubt that supporting E-911 is going to be problematic for non-facility-based VoIP providers. Today's Public Safety Answering Point people and police departments are fed up with VoIP over broadband upstarts, due to calling problems.
Aside from the frustration, most VoIP carriers don't fund the PSAPs. And as more people sign on to VoIP services, the more that funding disappears for E-911. Besides, E-911 solutions for mobile SIP phones or terminal adapters is two to five years away.
6 Taxation
When tax people don't know how the government will rule on taxing a service, they call it a "dicey" tax issue. They won't say that they just don't know. Well just about everything having to do with VoIP taxation is "dicey" at the moment, given recent congressional actions.
But there is one important take-away from a tax planning perspective when it comes to VoIP and other IP-based services: taxation is not technology-agnostic. From a taxation perspective, for example, a movie is not just a movie. The tax rules are different if you rent a movie from the video store, watch it over information services (cable TV) or get it over a telecommunications service.
OK, so think about this: Service providers are really excited about being able to display caller ID on the TV screen while you're watching a movie. You could argue that since caller ID is delivered as a telecom service, then the movie should be taxed as being delivered as a telecom service as well, and not an information service. As far-fetched as this sounds, there are countless examples of weird tax rulings. Bottom line: Have a tax person sit alongside marketing when new services are being created.
7 'You Can't Create Nifty Services Without VoIP.' Another Myth!
And about that concept of having caller ID displayed on your TV set, as an example of a value-added VoIP service: This service has nothing to do with VoIP. It's a provider delivering both voice and data to a customer.
Here is how it works. The service provider picks up the incoming caller's number from monitoring of SS7 packets, sends the number to a video middleware system and then inserts the number on the TV screen just like an ad insert. The cable companies and the ILECs working together could have offered this service years ago.
The point here is that the ILECs have been asleep at the wheel for the last 20 years regarding new voice services, and the new VoIP upstarts have caught them asleep. Consider that the top two services that VoIP-over-broadband customers like, after lower prices, are the ability to log on to a computer to view call logs and review voice mail, and support for a personalized directory. Guess what: if you are providing broadband Internet access and voice via circuit switching, you can provide call logs and personalized directories as well. Wake up, ILECs!
8 Circuit Switching Not Dead
For the last 20 years, ILECs have been searching for the next caller ID—a well documented cash cow service. The functionality came from existing SS7 infrastructure, and the incremental cost for caller ID software from Lucent and Nortel was virtually nil. What's more, the customer paid for the equipment.
Throughout the 1980s and 1990s, billions were spent expanding the SS7 platform to create the Advanced Intelligent Network (AIN). Other than 800 toll-free and 900 service, AIN did not create anything spectacular in terms of additional revenue.
Enter broadband and always-on capabilities, and you have just introduced new options for advanced circuit-switched services. Integrating video with wireless service introduces lots of functionality to compete with softswitches.
9 Application Service Providers Reborn
In the late 1990s the ASP business model failed miserably, just like the dot-com schemas of the time. However, the new model trend is focused not on the enterprise end user but the start-up VoIP and/or IP video provider, and the outsourcing of business functions is going strong in VoIP today. VoIP carriers are outsourcing E-911 to companies like Intrado, CALEA to companies like VeriSign, and number portability to wholesalers like Level 3 and Sprint.
Regarding outsourcing of applications, this was to be a big selling point for deploying IP softswitches—but it didn't take off, because they were never deployed as Class 5 or local switches. If local softswitches were developed, the ASP business model of the 1990s would have made sense.
Now eyes are being opened on new application development for hybrid broadband access and circuit switching. But what is missing is the old Bell Labs. The wireline players have no entity to work with on standards and applications in the arena. This vacuum could be filled by integrators who understand circuit switching technologies, SS7 networking and IP applications over broadband.
Bottom line: This next-generation ASP could not only develop a killer app for one wireline player but host that killer app for thousands of wireline players worldwide. The big Tier 1 RBOCs probably don't need ASPs in this market, but the smaller CLECs certainly do.
10 Training
Next to QoS, the No. 1 barrier to the all-VoIP PSTN is IP training. When the VoIP World attendees were polled on this issue, most believe training will be a five-year effort or longer. Consider that today almost all IP-based services are flat rate and best effort, so running an IP network is relatively simple. In the future, IP-based services will be QoS-enabled and complex, require SLAs and involve multiple trading partners. Service providers—from C level executives to trades people—are just not ready for the IP revolution.
If you want to hear what senior service provider executives are saying about these top 10 challenges to the all-VoIP PSTN, tune into Dr. Jerry Lucas' live Service Provider's Club webinar and audio conference on January 14, 2005, from 11:00 a.m. to 12:30 p.m. Eastern Time. To check out a full webinar agenda, see a list of participating panelists or register, go to www.telestratgies.com/theclub.
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