The Age Of Convergence: Threat Or Opportunity?
BY IKE ELLIOTT
The big communications service providers must be worried. As the packet telephony
revolution continues to pick up steam, and the costs for network equipment plummet, the
incumbent communications service providers must not be sleeping well. After all, new
carriers will soon invade their markets, spending a fraction of the capital incumbent
carriers deployed 10 years ago to build smaller networks. Wont the new entrants have
a competitive advantage?
On the other hand, cant incumbent carriers deploy the new converged network
equipment, too? Of course they can, and they are busy readying their own convergence
battle plans. Just look at AT&Ts cable
purchases and Sprints ION strategy to see two
clear examples of incumbent carriers gearing up for a convergence fight. Both companies
are embracing new converged network architectures, further validating the move toward
packet network backbones and away from circuit switching technology.
While the new technology will increase competition and create opportunities for new
players, the threat to the incumbent carriers is softened by the fact that service
providers of all sizes and ages can share in the benefits of the new architectures.
However, incumbent service providers risk falling into a trap if executives are unwilling
to cannibalize their own telephone revenues in order to move aggressively into Internet
THE COST FACTOR
Service providers all over the world are looking into packet telephony as a cost
reduction mechanism. While some focus on ATM, and others on IP, there is widespread
agreement that equipment using either technology undercuts the cost of circuit switching
in terms of bits transported per dollar. Plus, distributed software paired with packet
equipment can now emulate the functionality of a class 4 or class 5 switch, so the
functionality lead once held by circuit switching is beginning to erode. The industry has
begun to refer to distributed switch emulation software systems as softswitches.
Currently, a distributed softswitch costs 30 to 70 percent less than a circuit switch
with equivalent capacity. While that figure is impressive by itself, the performance/cost
ratio for softswitches doubles every 20 months, as compared with 80 months for circuit
switches. Softswitches have a cost lead, and are poised to run up the score. These cost
trends exist without regard to any temporary regulatory arbitrage phenomenon, which may
have cost justified Internet telephony equipment in the early years. Service providers
ignore these trends at their peril.
UNCHARTED TERRITORY: APPLICATIONS
Even if service providers could not count on the coming cost advantages of
Internet telephony, carriers must still adopt the new architecture or risk failure. Why?
Because of the promise of new packet-based applications that will entice users of all
forms of interactive multimedia communications. Service providers using only standard
telephones and circuit switches cannot deliver many of these applications. Some examples:
High-fidelity audio quality, voice/video integration, voice/data conferencing, stereo
conferencing, and wireless PDA/voice integration.
And the point of the coming application wave isnt really that we will be able to do
things that the old circuit-switched world could not support. The point is that
communications network users will have the choice of which applications they would like to
The CTI market has tapped the choice theme for years, and to great advantage. CTI
enabled end users to create their own services by purchasing software/hardware packages
that delivered the precise functionality needed by that end user. When contrasted with the
tired and overly complex advanced intelligent network (AIN) service creation concepts
preferred by some carriers, its no wonder most network users abandoned AIN to focus
on CTI instead.
The powerful drive for choice will now cause customers to select Internet telephony
service providers over circuit-switched service providers. Successful Internet telephony
service providers will expose CTI-like control interfaces on their IP multimedia networks
on top of softswitches. These new control interfaces will allow call routing, media
processing, and call treatment from an independent, third-party application. End users
will purchase software, which delivers the precise functionality they need, but now the
software will run on general-purpose computers with IP interfaces, instead of special
purpose hardware with circuit interfaces. Network users will not only be able to choose
the solutions they want, but they will also be able to choose where the solution runs
on their own enterprise server, or hosted on a server operated by their service
In effect, service providers will begin to position their network as a network
operating system, upon which many applications may execute. As it was in the early days of
Microsoft, the network operating system with the
most applications will begin to dominate.
CANNIBALIZE OR DIE?
Many large service providers have built value-added services businesses in an
attempt to preserve margins in a competitive carrier world. Examples include 800 services,
virtual private voice networks, calling card services, operator services, call center
services, fax, and messaging services. Much of the value these carriers have added never
quite meets the true needs of their most demanding customers. Something inevitably is lost
in the translation between customer requirements and service development engineers, and
the resulting product often falls short of customer expectations.
Despite the error-prone product development cycle of service pro-viders, very large
multi-billion dollar businesses have been built in several market segments, and most
incumbent carriers are reaping the benefits of their product development efforts in
Against this backdrop, the network operating system is beginning to take root, allowing
customers to meet their precise needs by purchasing a more primitive operating
system interface from their service provider, and then purchasing a third-party
application independently. What does it mean for the established enhanced services
offerings of the incumbent carriers?
THE CRITICS PICKS
The development of network operating systems will be one of the most interesting
spaces to watch in the coming years. Some carriers may be reluctant to give up their
enhanced services revenue streams, and so they will either offer no network operating
system product, or will price their network operating system product so that it does not
cannibalize their existing revenues. Other carriers may dive in despite the risks. Also,
it will be fascinating to watch whether the network operating system model takes root
quickly, or only gradually takes market share.
Meanwhile, watch the carriers that are first to market with carrier-grade Internet or
packet telephony services, and especially those carriers that have demonstrated
operational readiness to support rapid growth in Internet telephony subscribers. These
carriers will be the ones to grab the lions share of the new Internet telephony
Just as importantly, watch the carriers that dont execute a complete convergence
strategy, including both broadband and packet telephony components. These carriers are
likely to lose market share in the coming years.
Ike Elliott is Vice President of Softswitch Services at Level 3 Com-munications,
Inc. Level 3 is a communications and information services company that is building an
international advanced IP technology-based network. This network, consisting of both local
and long-distance networks, is expected to be completed in phases over four to six years.
Level 3 will focus primarily on the business market, using its IP-based network to provide
a full range of communications services including local, long distance, and data
transmission as well as other enhanced services. For more information, visit Level
3s Web site at www.level3.com.