An increasing number of service providers and
enterprises outsource all or some of their dial access
needs to large service providers, commonly referred to
as wholesalers. This outsourcing trend is driving the
evolution of wholesalers' business models to offer new
services that will help them remain competitive.
THE MARKET DYNAMICS
Demand for additional IP services, such as voice over
internet protocol (VoIP), virtual private networks (VPN),
fax over internet protocol (FoIP), and tandem access is
growing exponentially. Compound the demand for IP
services with the sheer magnitude of Internet users and
it's easy to see why wholesalers must expand their
infrastructure and incorporate new technology in their
networks.
In order for wholesalers to meet this increasing
demand they must invest in next-generation,
multi-service, carrier-class access switches to deliver
high-performance, high-volume network access and to
optimize seamless integration of dial, VoIP, FoIP, VPN,
and other IP services.
IP IS EVERYWHERE
Probe Research
indicates that there were 127 million global consumers
and small office/home office dial access connections in
the year 2000, representing 75 percent of all Internet
connections. With the Internet explosion just beginning
in some countries, the global demand for dial up
connections is forecasted to be more than a half billion
by 2005.
This Internet user community has come to expect
always available and extremely reliable service, like
dial tone, from their ISP. In addition, ISPs and
enterprises are searching for new services and
performance levels to differentiate themselves in an
otherwise price sensitive, commoditized market. These
market forces have joined and created the existence of a
new service industry referred to as wholesaling.
Instead of an ISP or enterprise owning and managing
their own modems, they outsource to their service or
network provider. Wholesaling addresses the needs of the
Internet subscriber by leveraging the reliability and
operational efficiency of the network service provider's
infrastructure while enabling the ISP to focus on
differentiating themselves through content, marketing,
and customer relationships. ISPs and enterprises are
expected to further derive the following benefits by
outsourcing to a wholesaler:
- Reduced investment outlay;
- Increased geographical reach;
- Network and port scalability;
- Carrier grade reliability;
- Protection against technical obsolescence;
- Quicker time to market; and
- Reduced interconnection costs.
The business of outsourcing to a wholesaler is
growing exponentially, with industry estimates reporting
up to 50 percent of all enterprises and ISPs outsource
all or part of their dial access to a wholesaler. IDC
reports that the demand for wholesale services will
increase substantially, with the wholesale market
growing from $3.1 billion in 1999 to $13.4 billion in
2004.
INDUSTRIAL EVOLUTION
Service providers have traditionally focused on
providing dial-up access between the Internet subscriber
and their ISP or enterprise. However, to enable these
future revenue predictions will require leveraging the
existing dial-up infrastructure to provide revenue
generating, enhanced services and next generation
capabilities. Thus, the birth of a new services
industry, the wholesale service provider.
Let's not ignore another motivation for wholesalers
to rapidly move up the value chain -- to differentiate
themselves from their competitors.
WHOLESALE SERVICES
The most fundamental of these services is a managed
modem offering, wholesaling connectivity, between the
PSTN network and the IP network, on a shared platform,
coupled with 24/7 support. The savvy wholesaler can also
provide managed bandwidth and Quality of Service (QoS).
These services allow the ISP to subscribe to a set
number of ports, or specific amount of bandwidth, given
the time of day or day of the week. The wholesaler can
also offer different service level agreements, ranging
from "best available" to guaranteed, dedicated ports.
The reality is IP services are becoming commoditized
and subscriber churn is further eroding margins. The ISP
has the opportunity to outsource these operations to a
wholesaler who can more efficiently and cost effectively
host these services to a greater number of customers,
leveraging a single financial investment. Examples of
these services include e-mail, news services, and Web
page hosting. In hosting these services, the wholesaler
begins to progress up the value chain.
The enterprise and ISP customer needs assurance that
their messages -- packets of data, targeted for an end
point -- reach their destination through a secure
network, also known as a virtual private network (VPN).
This service is largely driven by the need for
corporations to securely network telecommuters and
mobile employees to their corporate offices. Benefits
include:
- A new revenue stream for wholesalers;
- Same level of security as ISPs; and
- Lower cost IP connections for the enterprise.
An alternative to voice switching is Tandem access --
which is simply a remote access server (RAS). Tandem
access offers the service provider the ability to switch
both voice and data calls received on incoming inter
machine trunks, directly on the RAS platform, sometimes
referred to as switch grooming. Benefits accrued to the
service provider include:
- Fewer translation tables to create and maintain;
- Cost effective alternative for offloading PSTN
network congestion onto the IP network; and
- Ability to increase access termination revenues.
The convergence of voice and data access has created
a host of new revenue possibilities for service
providers. Leading the charge for applications is VoIP,
the ability to alleviate PSTN congestion by offloading
voice calls onto the packet network. Both the service
provider and the Internet subscriber stand to benefit,
resulting in the emergence of a win-win application.
Service providers will benefit through deploying voice
services free from the burden of tariffs and
regulations. Internet subscribers will likely trade
long-distance toll charges for the low cost, flat rate
pricing of the Internet. However, with today's
technology, the most promising markets for VoIP remain
corporate intranets and the Internet hobbyist.
Will any of these services become a "Killer
Application?"
VoIP is the most significant service, measured in
market size. Probe Research estimates that voice over
packet networks carried approximately eight billion
minutes of use in 2000. By 2005, VoIP is expected to
carry more than 75 times that amount. TeleGeography, a
Washington, DC based research group, suggests service
revenue will grow from $1.6 billion in 2000 to $18.7
billion in 2004.
According to Probe Research, VPN services will have
the next highest level of growth at 91.9 percent CAGR,
with revenues reaching $7.4 billion by 2003.
With statistics like that, you may be wondering: What
technologies are required to migrate from traditional
modem wholesaling to these value added services? And,
more importantly, how does a service provider get there
without a "wholesale" replacement of their RAS
investment?
The largest enabler of VoIP, FoIP, and modem
technologies is Universal Port. Universal port is an
integrated multi-service platform, which enables VoIP
and tandem applications on the same platform and uses
the same software load as the RAS application. A
universal port provides the following added value to the
wholesaler:
- Lowers operational costs because the modem and
voice termination is on the same port thus reducing
space, heating, and cooling requirements;
- Protects the wholesaler's existing infrastructure
investment as they expand to voice; and
- Eliminates the need for expensive TDM switches to
split voice and data traffic.
The universal port also has the ability to create the
illusion of a virtual point of presence (VPOP) which
enables wholesalers to partition their RAS equipment
into a series of mutually independent access switches,
each of which has its own authentication method,
database, billing system, and management interface. This
technology enables:
- ISPs and enterprises to "virtually" locate their
POP within the wholesaler's network;
- Isolation of subscribers; and
- Re-use of physical facilities for maximum return
on investment.
THE CHALLENGES AHEAD
Many factions contribute to the end users experience,
the wholesaler, the equipment provider, and the ISP or
enterprise. Each will need to collaborate and
contribute to resolving the challenges in deploying
future services that resonate with Internet subscribers
while generating a profitable return on their
investment. A few examples include:
- Provide users with an experience equivalent to the
PSTN;
- Affordably and economically deploy enabling
technologies on incumbent RAS platforms;
- Improve interoperability across equipment
manufacturers;
- Increase backbone bandwidth capacity;
- Generate profitable applications that resonate
with Internet subscribers; and
- Protocol standardization.
By upgrading the incumbent RAS technology with these
newer enabling technologies, offering profitable value
added services, and joining forces to overcome the
inevitable challenges, the wholesaler will truly
obfuscate the boundaries between the PSTN and IP
networks, public and private networks, residential and
commercial markets, and voice and data technologies.
Jeff Harrison is senior manager, CVX Product
Marketing, for the Wireless and Core Networks line of
business at Nortel
Networks. Nortel Networks is a global Internet and
communications leader with capabilities spanning
optical, wireless, local, personal Internet, and
eBusiness.
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