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Feature Article

March 2000

IP TELEPHONY: ENABLING THE FUTURE

BY OFER GNEEZY

The Internet's real impact on global communications is its role as a technology platform ideal for developing and deploying new services more quickly and cost effectively.

It has become commonplace to ascribe the rapid pace of change that is transforming business and society to the Internet. That theory certainly holds true in global communications as the Internet is profoundly affecting virtually every aspect of the industry, from input devices (formerly known as telephones), to transmission and services. The Internet is not only increasing the pace of change, it is also raising expectations for the rapid development of new technologies and faster deregulation of the communications marketplace. For service providers, there is a heightened sense of urgency about keeping pace with these changes and the resulting increase in demand with new, competitively priced services. Ironically, the Internet, the primary cause of much of the tumult, is also at the heart of the solution.

After several years of hard work, Internet telephony has finally hit the big time. We're seeing explosive growth in the volume of voice and fax traffic moving from the circuit-switched telephone networks onto the Internet, much of it coming from "traditional" Tier One telecommunications carriers. Already, a number of these carriers are delivering Internet-based service to their customers undifferentiated from their traditional network service. The achievement of quality standards equivalent to or better than that of traditional phone networks marks a coming of age for Internet telephony, because while large carriers are eager to take advantage of the lower transmission costs of Internet telephony, quality and reliability of service have always come first. In turn, this new level of quality is driving an ever-increasing volume of traffic onto the Internet.

The Internet's real impact on global communications, well beyond its lower cost structure, is its role as a technology platform ideal for developing and deploying new services more quickly and cost effectively. Unlike traditional, circuit-switched phone service, IP telephony is based on open, industry technology standards, facilitating rapid application development and service deployment. This means that while basic voice and fax service dominates current Internet telephony offerings, within only a few years there will be a large number of value-added applications available, including unified messaging, roaming toll-free service, and other advanced communications solutions that we can barely conceive of today. In other words, the Internet, which has already transformed commerce and enterprise data applications, is about to irreversibly alter the face of global communications. It is driving the creation of a new, expansive, open communications industry that will be fueled by existing carriers, ISPs, and a multitude of newly enabled market entrants from every corner of the world.

WANTED: A NEW BUSINESS MODEL BUILT FOR GROWTH
To date, Internet telephony service providers (ITSPs) have generally adopted one of three business models: Wholesale traffic exchange, the clearinghouse model, or building a network from scratch.

While obvious and practical for early IP telephony market entrants, these models limit participation in the Internet communications revolution to players with existing networks. In order to enable Internet telephony to achieve its full growth potential, a new, more open business model is required. Think, for example, of the role that data network providers like UUNET (an MCI WorldCom company) have played in expanding the number of ISPs. By enabling ISPs to outsource their network infrastructure, these data network providers have effectively opened up that market to any organization that has the ability to attract, retain, and support online customers. It is easy to see how an outsourced or "hosted" model could be applied to Internet telephony. If the "heavy lifting" of deploying and maintaining a global Internet telephony network infrastructure were outsourced, virtually any organization with the ability to attract and retain customers could become, almost overnight, an international service provider. For existing regional carriers, hosted Internet telephony from an Internet telephony service provider (ITSP) provides the ability to deliver services to destinations beyond the home territory, enabling them to realize revenues that had previously been "out of reach." The possibilities for IP telephony market expansion in this model are nearly limitless. One can imagine, for example, an entrepreneur becoming an international long-distance provider, an ISP becoming an enterprise telco, or an e-commerce provider delivering voice-enabled solutions.

Perhaps most excitingly -- as outsourced or hosted Internet telephony takes hold - value-added services will proliferate as new market entrants search for new ways to compete for customers. An expanding number of competing service providers will not only spur innovation, but can also be expected to accelerate overall demand for communications services. Those able to leverage Internet telephony to deliver these innovative new services will succeed, while those carriers that hesitate or are late to market will lose customers to swifter, more innovative rivals.

MANAGING RISK BY OUTSOURCING
Deploying new packet-switched, Internet-based services, while significantly easier than rolling out new circuit-switched services, still requires significant technological know-how. By partnering with an ITSP to outsource infrastructure, service providers can avoid many of the common technological pitfalls associated with the rollout of new services, and more quickly and successfully expand their offerings and enter new markets. In addition, service providers can work with ITSPs to create customized communications that enable them to compete more aggressively, while managing the risks inherent in new service deployments.

Providers that outsource also benefit from an ITSP's direct access to the local PSTN in each country where there is hosted infrastructure. This arrangement enables providers to offer international voice and fax service at the cost of local calls. In this model, carriers also avoid the time and hassle of conducting negotiations throughout the world for local termination rates, since they can take advantage of the rates available to the hosting ITSP.

Another significant advantage to the hosting model is the ability to extend existing services by originating calls from new locations abroad. For example, a regional carrier with no international presence could market calling-card services to expatriate communities in countries in which its hosting provider has local phone network access, capturing previously untouchable revenue streams.

There are also advantages in scalability and operational flexibility with this model that would be impossible were a carrier to undertake its own global network build-out. For example, with hosting, a carrier needn't be concerned about sub-optimal equipment deployment when traffic on a given route expands or declines. Nor does a service provider have to scramble as global communications regulations, technologies, and standards evolve. Internet telephony hosting puts the burden of adapting to these changes on the ITSP, enabling service providers to continue to focus on their customers.

THE FUTURE OF INTERNET TELEPHONY
For existing carriers and new market entrants alike, the outlook is clear: Those who are able to most quickly deliver value to the market will succeed. The debate over the future of telephony is largely over - it will be Internet-based. Perhaps the only questions that remain to be answered are how long it will take to get to this new, packet-switched world, and who will lead the way. To date, the trail toward global presence and toll quality has been blazed by ITSPs. That hard work has produced some remarkable results that are changing the communications industry. The next step toward realizing that future is opening the door to the rest of the industry, enabling new market entrants and existing carriers alike to participate in this revolution. c

Ofer Gneezy is president and CEO of iBasis, Inc. iBasis uniquely combines a superior technology platform, premium Internet bandwidth, and proprietary Assured Quality Routing (AQR) software to deliver toll-quality Internet telephony services to Tier One carriers and other international service providers. The iBasis Network, a global, high-capacity Internet communications network, is the world's largest international Cisco Powered Network for Internet telephony. The company can be reached at its worldwide headquarters in Burlington, MA at 781-505-7500 or on the Internet at www.ibasis.net.


Policy-Based Management: Stoking The Red-Hot IP Services Market

BY GOUTAM SHAW

It's a fact � ITSPs eager to cash in on the lucrative business opportunities associated with the red-hot IP services market need to build the right network infrastructure, the right way, from day one. But building a network infrastructure that supports the delivery of enhanced IP services does not, of itself, guarantee success in this highly dynamic, competitive market. Clearly, ITSPs need something more.

Mapping Subscribers And Service-Level Policies To Network-Level Resources
In today's e-business world, customers want and expect to have a gamut of personalized IP services and pricing options available at their fingertips. To meet this demand and stay one step ahead of the game, progressive ITSPs require an end-to-end policy-based services management system. With such a system, ITSPs have the flexibility to seamlessly integrate subscriber, service, and network-level policies across the entire system. This in turn allows them to dynamically deliver various levels of service quality to their customers. A policy-based services management system enables ITSPs to utilize network resources more efficiently by mapping subscriber and service-level policies to network-level resources. In essence, it arms ITSPs with the cost-effective solution they need to create subscribers and their services, or levels of service, and deliver the services according to their customers' needs based on the selected service level agreement (SLA).

A policy-based system offers ITSPs the capability to create the ultimate delivery platform by building the policies that determine which services customers have access to and when � right into the network infrastructure. In a highly congested marketplace, such a solution offers ITSPs a real competitive advantage - the ability to differentiate service offerings and move up the value chain by delivering personalized, multi-technology IP services according to customers' needs and expectations. This powerful capability can play a significant role in attracting and retaining more customers.

For example, a policy-based management system enables the network to determine which type or level of service (e.g., bronze, silver, gold) the customer gets and the ITSP then sets up the network accordingly. With a policy-based platform, service levels are efficiently mapped into the network level, offering the capability to deliver every type of service and feature imaginable.

This type of platform would, for example, allow a corporate executive to select a gold level service package for VoIP calls made to his or her colleagues. This level of service offers premium quality voice, characterized by high clarity and granularity, and low latency. However, the executive may decide to choose a lower priced, bronze service for overseas calls made to family and friends. With a policy-based management system, the user has the flexibility to choose either or both packages, depending on a particular set of needs at any given time. The policy-based service management system allows the customer to select a variety of service quality levels. These service quality levels dynamically interact with the network elements to help implement the policies so that the customer receives the quality desired.

The following example illustrates how a policy-based management system assists in the execution of a VoIP call from start to finish.

  • Customer places call from a regular phone or PC;
  • ITSP receives signal from the network that a call is coming through;
  • Policy-based system identifies the customer and determines whether or not they subscribe to a specific plan. If they subscribe to a prepaid package, the policy determines how much calling time remains. This information is then communicated to the caller (e.g., through a voice prompt);
  • System authenticates the user via a PIN, password, etc.;
  • System configures a media gateway with the appropriate QoS (e.g., bandwidth) so the user can place their call according to the QoS stipulated in the service package;
  • Call is connected;
  • After the call is completed, the system tracks pertinent accounting information and sends the information to the billing system; and
  • ITSP bills for the call accordingly.

In a nutshell, an integrated, policy-based IP management system offers ITSPs:

  • The flexibility to create and deliver value-added services and bundles of services based on customers' specific needs;
  • Customer self-administration -- a feature that enables customers to create and manage service packages to meet their needs, and pay for these services on a per-call basis;
  • A vendor-agnostic system that provides "intelligence" that enables various network components to seamlessly communicate with one another so that policies are enforced throughout the entire network;
  • Simplification. The more complex the network and services are, the greater the value of policy-based management. A policy-based system facilitates the creation of complex services and simplifies modifications and enhancements for the re-provisioning of services;
  • An intelligent accounting system that captures usage and enables ITSPs to bill for services on a per-call basis - a feature that is crucial for subscription services; and
  • More efficient use of bandwidth and a more efficient network.

Driving The Revenue Curve
Putting a policy-based system in place will position ITSPs for future growth, giving them the framework they need to cash in on the IP services market and deliver a wave of customized services and packages. But more than that, they'll have a sustainable competitive advantage by being able to offer their customers the flexibility to choose the level and quality of service they want - when they want it. ITSPs planning to make their mark and deliver next-generation services such as Web commerce, call centers, and unified messaging, need to inject policy-based service management capabilities into the equation. This will clearly put them ahead of the pack.

Goutam Shaw is product manager for Bridgewater Systems Corporation. Bridgewater has designed a new architecture of intelligent, carrier-scale software that transforms the way service providers create, provision, manage, and bill for network-wide IP services. The WideSpan solution is a unique, scalable suite of IP service provisioning and control software that helps Internet providers manage high-octane growth and deliver services faster. For more information, visit the company's Web site at www.bridgewatersystems.com.


Good-Bye To The Old Regime

BY GREG GALITZINE

While it may be some time before the "newly-IPOed" Internet Telephony Service Providers (ITSPs) stand side by side with the likes of AT&T and MCI WorldCom/Sprint as far as market capitalization is concerned, there is no denying the fact that the recent spate of public offerings bodes well for the future of telecommunications. Embodied by companies such as ITXC, iBasis, Net2Phone, deltathree.com, GRIC, and e-Net; with their zeroplus.com service provider play), the growth that this sector has seen in the last half of 1999 signals that the incumbent service providers need to beware.

This crop of next-generation service providers has seen their stock prices explode beyond even the most liberal projections of a year ago. E-Net, the smallest of the above-mentioned companies, has seen their stock price vault from a 52-week low of two dollars to nearly $15. And at the other end of the spectrum, Net2Phone saw their successful IPO followed by a stock price run all the way to nearly $93!

And, there's actually something to all of this activity. Internet telephony, merely a buzzword and a potentially good idea a year ago, is fast becoming a legitimate telecommunications alternative. Companies are converging their voice and data networks, customers are signing up for the low rates offered by these ITSPs in ever increasing numbers, these new carriers are hauling millions upon millions of minutes of traffic, and the future shows no signs of slowing growth. Granted, no one expects the giants of the circuit-switched world to simply lay down and die, but even they have been forced to embrace the future as evidenced by initiatives like Sprint's ION, MCI's On-Net, and the like.

The future of telephony is the Internet. And Internet telephony has changed the face of communications forever. The wealth of enhanced services, the efficiency of running voice over packet networks, the realization of all the potential that this industry has to offer, and the multi-billion dollar acceptance of the next-generation service provider by Wall Street� A new guard has arrived on the telecommunications scene. And it's hello to the future, and goodbye to the old regime.







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