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October 2007 | Volume 2 / Number 5
Desk of Michael Khalilian

VoIP and ROI Challenges

By Michael Khalilian
VoIP technology has been challenged from its inception in every possible way, from its protocol development, interoperability and network integrations to the replacement of incumbent Class 5 digital voice switches. VoIP has always been an integral part of the evolution of Softswitching and Application Server capabilities and the plan to utilize the rapid growth of Broadband high-speed Internet accessibilities across all markets. With all these changes happening in parallel, it is very difficult to evaluate the impact on OPEX (News - Alert) and CAPEX and this has caused the per port cost or subscriber cost questions and concerns of Wall Street investors.

ROI: From 20,000 feet view it is self-evident that VoIP technology brings an abundance of savings and opportunities to both greenfield as well as existing networks. So why, when it gets to volume deployment, has VoIP not cornered the voice market yet?

The answer is simple. First of all, traditional TDM (Class 4 and 5) switches are being replaced by IP switches. And while the capital cost is going down, the revenues are also heading the same way. Many VoIP service providers do not own their customer access and broadband networks, which limits their growth while adding substantial marketing costs in order to acquire subscribers. They also have to pay to non-VoIP network providers access and interconnection fees, at the end, reducing or completely eliminating their net revenues. In addition, as time goes by consumers and enterprise customers alike are demanding more applications, more bandwidth and all at a lower and lower cost. Finally, adding to the cost burden we should not forget about costs associated with quality of service improvements and meeting all regulatory requirements such as E911, CALEA, the high cost access fund etc.

Other examples of ROI challenges include the non-facility-based CLECs reselling ILECs services. Most of the CLECs that did not own their own switches and facilities failed due to regulatory changes and the DLECs that came and went overnight that were reselling RBOCs broadband access.

Bottom line: VoIP is proven technology, and it should not take the blame for weak or failed virtual VoIP providers' business plans. What is really required is to improve the business plan with creative management and marketing, add more applications and services and listen to customers' issues. These are a few of the challenges for Virtual VoIP providers. The old adage that you need to spend smart money to make money still holds true. Undercapitalization of VoIP Service Providers added to the predicament of technology and service integration. There are a number of small and large service providers with successful business and deployment plans in place that are moving to bundle more services, and enhance service performance by leveraging IMS architectures and partnerships. Still more challenges are facing current business models: broadband networks are also changing with new technologies such as WiMAX (News - Alert) and WiFi incorporations into WISP and upcoming broadband satellite services. Industry leaders are taking positive steps by joining groups like the IMS Forum (News - Alert) to alleviate these concerns and not repeat past mistakes.

Michael Khalilian is Chairman & President of IMS Forum ( Please forward comments and questions to

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