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Next-Gen Service Provider: January 12, 2010 eNewsletter
January 12, 2010

Windstream SIP Trunking Shows Inflection Point

By Gary Kim, Contributing Editor

Telecom service providers are not known for pioneering innovations that might represent the future but which also cannibalize existing services they already offer. Digital subscriber line is one example. Executives worried that DSL would cannibalize high-margin T1 services.

That might be true in some cases, but eventually executives saw that it was a huge consumer product. Only a bit later was it clear how foundational such services would prove in the emerging service provider market.

Incumbent service providers have had the same issue with Session Initiation Protocol (News - Alert) trunking, which more directly displaces business T1 lines. But there always comes a time, in the early lifecycle of any popular product, when it is more dangerous to avoid cannibalization than to embrace cannibalization to capture a significant share of market for the emerging product.

And that seems to be the case for SIP trunking services.

Windstream (News - Alert), for example, has launched 'Dynamic Office - SIP.' In offering an IP solution that provides customers direct access to Windstream’s private IP network for data and voice communications, Windstream will risk cannibalizing some existing 'primary rate interface' business.

Windstream's move validates SIP trunking. But as always is the case, the incumbent's entry into the market can change sales dynamics quite dramatically.

You probably do not remember Northpoint Communications or Rhythms NetConnections. Both were among the three U.S. companies pioneering DSL services in the U.S. market. Northpoint went bankrupt and its assets were acquired by AT&T. Rhythms went bankrupt and its assets were bought by WorldCom, which later merged with MCI, which ultimately was purchased by Verizon (News - Alert).

You might know of Covad Communications, the only remaining provider of the three original independent DSL providers who pioneered the market. Covad (News - Alert) itself declared bankruptcy in 2001 but remains in business as an independent company.

The point is that independent companies pioneered the service early on, but it was incumbents who had the most to gain and now represent most DSL lines in service in the U.S. market.

That same pattern was true of the mobile business as well, which was pioneered by indpendent companies but now is lead by incumbents.

One might expect a gradual unfolding of SIP trunking services along lines following the historic pattern. Today most companies likely buy their SIP trunking services from independent providers of one sort or another. Over time, that likely will change as incumbents decide the service is too important to ignore.

Communications really is a business of scale, and history suggests that even when incumbents do not move first to commercialize a technology, especially when it has mixed financial implications, they eventually move aggressively and most often wind up dominating the market.

Windstream's move into SIP trunking likely is a signal that the SIP trunking market is about to see a major shift of market share. The major incumbents already have moved to offer SIP trunking, though they might not be 'pushing' the service as aggressively as they someday will.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Patrick Barnard


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