IP Communications Profile — Shift Networks

Shift Networks of Canada (http://www.shiftnetworks.com) offers an exciting new hosted Voice over IP (VoIP) business phone service based on a dedicated, secure broadband connection called Shift VoiceLink, that runs between your office network and a Shift data center. Calls from your office travel directly to the data center/central office, then connect to the conventional public phone system. Yours Truly spoke with both Shift’s CEO Trent Johnsen and its CTO, Erik Lagerway. (news - alert)

Grigonis: Tell us about your background.

Johnsen: I’m an early stage entrepreneur. I pioneered alphanumeric paging in Western Canada with Motorola in the mid-1980s with a company I had called BRYJON Communications Ltd. that became the leading provider of alphanumeric paging. We were a service bureau for small and medium-sized businesses [SMBs] for alphanumeric paging and we were consolidating telephone answering services into an automated call center and wireless dispatch facility. That was a good business, which I sold in 2003.

In the mid-1990s, I formed a company called Offsite Data, which pioneered the automated backup and storage of computer data. We had mainframe facilities sitting in a managed data center environment and distribution agreements with Group Telecom, Canada’s largest CLEC, and with British Telecom in the UK. We were in early work with Deutsche Telecom in Europe and we basically had a subscription-based automated backup and recovery service via last-mile broadband for SMBs. I sold that business in 2000 at the height of the tech boom for about $62 million.

In 2001, I was working on another opportunity and Shift was at that point at the business plan stage, with a Building Local Exchange Carrier [BLEC] model. The business vision was to deliver a bundle of data and voice services to SMBs over broadband. What was intriguing to me about Shift was the economics. It was a customer audience and a business model in terms of recurring subscription revenues and the value proposition that I understood relatively well. It was apparent to me that as voice increasingly became a data or packetdelivered technology, then that was going to be one of those paradigm shifts, one of those fundamental changes that take place in an industry that create massive opportunities. In 2002-03 we were the first non-LEC in the country to enable Voice over DSL over ATM and then connect back into the PSTN without owning facilities. We even had some scientific research and education grants and funding. We were essentially exploring how to deliver voice over packets. By 2004, we licensed a Canadian technology that really was doing the best job in the world of hosted virtual key system functionality. That company is Natural Convergence of Ottawa. We were one of their very early customers. We launched commercial service in our first city in the summer of 2004, delivering virtual key system service via lastmile broadband connections to SMBs. We thought our average customer at the time would be about 8 employees per location — the fat part of the Canadian SMB market is between 5 and 50 seats per location.

Grigonis: So 50 users is as large a site as you handle?

Johnsen: Our largest customer today is in the range of 150+ seats at a single location. But 80 to 90 percent of our customers would skew between about 8 and 20 seats. I believe there’s a higher percentage of Canadian businesses in the sub-50 seat marketplace than in the US. Indeed, about 90 percent of Canadian business are SMBs, or between 5 and about 200 seats. 15 to 20 percent of those would be over 100 seats, and the rest would be between 5 and 100 seats. It’s a very big market segment and it’s also the fastest-growing one in Canada.

Interestingly, if you come and shop in Canada’s urban markets today for the type of hosted IP services that Shift delivers, you’ll find that we’re completely unique. There are a huge number of greenfield opportunities here in Canada. There are some rumblings from the major cable players and the incumbent telcos that have enjoyed an oligopoly environment, but they aren’t doing much in terms of hosted IP offerings for SMBs. They may come down as low as 200 to 300 seats but we certainly don’t see them in our market yet.

Grigonis: In your model, does the customer have any equipment on his site, or is it all hosted by Shift Networks?

Johnsen: It’s pretty much 100 percent hosted. We have a relatively straightforward network topology. Most importantly, we take dedicated, managed, lastmile broadband to our customer premises, so we’ve been able to avoid any best-effort VoIP in our product offering. That will change somewhat in 2007 as we get more aggressive with remote handsets and softphone technology. Still, our core business premise is that we take dedicated managed broadband to our customer premises and we partner and lease those facilities with lastmile broadband providers in the markets we serve. We put a router on the customer LAN and we sell them IP handsets that leverage the pre-existing LAN infrastructure, so if we’re coming in to serve you, we take your existing RJ-45 connection on your LAN, plug it into a port on the IP set, then bridge the IP set back into whatever you were using your RJ-45 for; generally into your PC. The phone boots, finds our network, and then you have a fabulously rich suite of hosted services that runs through a toolbar on your desktop or through a business portal.

The value proposition is as follows: If you go set up a shop with 10 or 15 people, you can subscribe to world class, state-of-the-art, hosted IP communications for a fee in the range of US$40 a month. There’s no investment in CPE other than your handsets, and there’s no need to purchase and manage a PBX or key system equipment. You’re now future-proof too, as we continue to evolve our network and support emerging applications.

Grigonis: Do you need a gateway via the PSTN or do you connect directly to a next-gen network?

Johnsen: The vast majority of our installations, about 15 employees per site, use a DSL router — we serve up DSL. Many of my American associates tell me they’re still using T-1s. In Canadian urban markets, there is a very high QoS [Quality of Service] of 1.5 to 5 Mbps DSL last-mile broadband access. It’s cheap, fast, and reliable. It costs us about US$25 for a dedicated DSL connection to support a 15-user installation.

Grigonis: You’ve done a deal with BroadSoft?

Johnsen: In the 2nd quarter of 2006, we decided to deploy BroadSoft as a second hosted application in our offering. Our Natural Convergence platform does a really fabulous job of emulating key system functionality, which is a great entrance into the SMB marketplace, but BroadSoft gives us open standards SIP capability, which, in turn, gives the ability to support more kinds of endpoints, continue to improve our economics, and do some innovative things for our customers. We also liked what BroadSoft was doing by way of fixed/mobile convergence [FMC] and desktop integration, because we really see our opportunity to deliver a suite of hosted business applications for SMB users, centered on IP voice.

Grigonis: You market all over Canada?

Johnsen: Technically, our service is available in most of Canada, though presently we’re formally offering services in the largest six English-speaking Canada urban areas comprising over half of the English-speaking SMB market: Victoria, Vancouver, Calgary, Edmonton, Toronto and Ottawa.

As the CTO for Shift Networks, Erik Lagerway is responsible for identifying, sourcing, and delivering next-gen SMB communications applications and essentially runs the Shift R&D department.

He explained how Shift is providing a new service called Shift Continuity as part of its new offering. Shift Continuity will allow the user to enjoy voice service of high reliability. The user can now sleep well at night, knowing that if the connection fails tomorrow for their voice service, they’ll still have dial tone on their phone.

“We dealt with Q9, which is a colocation provider that has many different vendors cross-connecting through their facilities,” says Lagerway. “It was a convenient place to situate our equipment. Shift’s services are based on a dual-redundant architecture. Shift has two central offices [COs], one in Calgary and the other in Toronto. We backhaul smaller POPs situated across Canada into those networks, so if your call is coming from the eastern side of the country, you’ll be backhauled into Toronto, and if you’re coming from the west, you’ll be backhauled into Calgary. The two COs are interconnected with dual redundant private WANs. All of the equipment within the COs is also dual redundant. If a piece of equipment fails, it automatically fails over to another piece of equipment on standby. If an entire CO suffers a catastrophic failure, all of the traffic will be diverted to the other CO. Any way you look at it, we’ve built an incredible amount of redundancy into the network core, which translates into great reliability and availability.”

“The second and probably most important piece is that we built this entire network, from both a telephony and IP Communications perspective, using SIP [Session Initiation Protocol],” says Lagerway. “So we’re standing true to the open standards mantra. We believe that will ultimately allow us to be more affordable and we’ll have a much more feature-rich offering, simply because the open standards community supports the development of SIP, which essentially creates a good, competitive marketplace on the vendor side, thus making our job as a service provider much more interesting.”

“When you deal with Shift you’re buying a hosted IP Centrex offering today,” says Lagerway, “which is delivered to the customer premise using SIP. We’re also using some intelligent NAT [Network Address Translation] traversal in the core so that we can deliver service to you practically the moment you become a customer. We have an interesting offering that’s delivered to you when you sign up, in the form of a toolbar that drops into Outlook and Internet Explorer. It immediately allows you to take advantage of your service, even though you haven’t received any IP handsets yet. The toolbar allows customers to leverage their existing technology to take advantage of the new features that are available through Shift, even though they don’t have an IP handset yet. Such early delivery of service allows us to keep our customers happy and also realize revenue immediately on each sale.”

Lagerway elaborates: “To continue this scenario, after a few days the handsets arrive, having been drop-shipped from a distributor direct to the customer, and they’re all preconfigured. Upon arrival, the IP handsets get plugged in, but they’re still running over best-effort service on an interim basis — probably a couple of weeks — until our managed link is installed. However, the beautiful thing about this is that even though it’s initially besteffort, the quality of service is still immaculate, as long as the network is not congested, and we make sure that doesn’t happen, thanks to the LAN assessment we do during our first customer visit. Moreover, it’s a private network and there are POPs across the country, so our QoS is very good, even in a best-effort environment.”

“After a couple of weeks,” continues Lagerway, “our managed broadband link is installed that we’ve allocated and are going to dedicate now solely for voice, which will assure a high QoS and the best possible customer experience that you can achieve in a VoIP offering or an IP Communications offering, whether it be a voice call, video, or what have you. The customer is now even more happy, because he now has a form of dual redundancy at his premise.”

“Let’s say the Internet service fails during the initial two-week ‘best effort’ phase and the customer suddenly loses dial tone,” says Lagerway. “Fortunately for us, we have features at the network core that will allow his service to continue. We’ve got some other interesting features, such as Simultaneous Ring capability. So even if the customer loses Internet access, he can dial into the voice portal from a cell phone, if necessary, and ‘tell’ the voice portal to now turn on Simultaneous Ring to the cell phone. Now, when customers receive a call on their office phones, even though the Internet connection is down and they’re not going to be able to answer on their IP handsets, they’ll still be able to take those calls. It’s not a perfect scenario, but at least you can still place and receive phone calls.”

“The best version of this disaster scenario is — if the Internet connection fails, it fails over to another Internet connection that doesn’t fail,” says Lagerway. “In that way customers can still use their IP handset.”

Lagerway concludes with: “So, that’s one of the features that we’ll deliver as part of our new network offering to customers, to allow them to feel comfortable, knowing that their business telephone service will be ‘up’ almost as long, if not more, than the traditional POTS network.”

Richard Grigonis is Executive Editor of TMC’s IP Communications Group.

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