June 2002

Network Convergence: Reaping the Early-Mover Advantage

BY DOUG REINART & SHEKHAR SOMANATH

Despite lingering constraints on capital expenditures, telecommunications service providers continue to place a high priority on technologies that promote network convergence through voice-over-packet (VoP) capabilities. These technologies offer service providers a way to achieve cost advantages and enhanced service offerings in an environment where fierce competition continues to drive down prices for undifferentiated transmission services. Yet, the path to convergence can be a confused and bumpy one. Companies that pursue convergence aggressively, and do so in a structured manner, will establish a true competitive advantage. They will be well positioned for the inevitable telecommunications upturn.

Convergence in this context refers to combining circuit-switched voice networks (typically, the PSTN) and packet-switched data networks (typically, an IP network) to offer integrated data, voice, and video services over a single network. 

ARCHITECTURE FOR NETWORK CONVERGENCE
Converged networks will consist of specialized network elements, such as media gateways, softswitches, and application servers, which will provide the glue between the circuit and packet realms. To better understand the architecture of the converged network, it is helpful to break down the network functionality into three layers: Transport, Call Control, and Application.

Transport Layer � The most hardware-centric of the three layers, this layer addresses the actual, physical transport of the electric and optical signals as well as the translation, interpretation, and management of the protocols used to encode voice traffic between TDM and IP formats. In the converged network, the media gateway resides on this layer and converts voice traffic from TDM to IP and vice versa. 

Call Control Layer � This layer is responsible for setup, monitoring, and tear down of calls across the network � commonly referred to as signaling. The SS7 network performs this function for the PSTN. In the converged network, a media gateway controller, also known as a softswitch, performs these functions. The softswitch controls the media gateway by managing calls across the IP network and communicating directly with the PSTN�s SS7 network. A softswitch uses IP-compatible protocols such as SIP (Session Initiation Protocol) for call control across the IP network, and interacts with the SS7 network (directly or through a signaling gateway) to maintain proper network intelligence regarding the voice traffic it is managing. The softswitch frequently serves as the platform for application or feature servers.

Application Layer � Application servers and software reside on this layer to provide the services and features associated with telephone service. Interoperability among the converged network elements is essential for interaction across the different layers. Similarly, open standards are essential for allowing network operators to mix best-of-breed components from different suppliers and to upgrade or expand components in each layer without disturbing the others.

THE CASE FOR NETWORK CONVERGENCE
The value proposition of a converged infrastructure is technologically and financially compelling for network operators. There are a number of industry trends driving service providers toward implementing converged networks. New entrants are offering traditional voice services far more cheaply by using packet-based networks. This forces incumbent service providers to find new sources of revenue by offering other value-added differentiated services.

Since competitors can gain easy entrance into new markets because of rapid developments in IP/Internet, incumbents feel the pressure to upgrade legacy networks. 

One of many benefits converged networks offer service providers is reduced equipment and operating costs. Media gateways, softswitches, and application servers cost less than the Class 4 or Class 5 switches they replace. These elements make more efficient use of the available bandwidth, resulting in less hardware to operate and repair. Their open architectures also make them cheaper to maintain, and they consume less real estate and energy in the central office. Perhaps a more powerful motivator to service providers is the ability of converged networks to provide new sources of revenue. The standard protocols, languages, and open architectures of next generation networks facilitate rapid development and rollout of new services. 

Service providers clearly recognize the opportunity an all-packet network represents. Leading market research firms such as Probe, Synergy Research, and RHK estimate that minutes of voice, fax, and data traffic carried over packet networks such as the Internet could grow at a compound annual rate of 100 percent through 2004. Synergy estimates that the market for network convergence elements will grow from $775 million in 2001 to over $8.5 billion in 2005.

KEY IMPLEMENTATION CHALLENGES
Despite the apparent benefits of network convergence, numerous technical and business challenges have tempered carrier enthusiasm for the new technology. From a technical standpoint, functionality and interoperability of converged network elements have been major concerns. Only recently have packet-based networks, with their inherent best-effort delivery nature, offered Quality of Service (QoS) � or guaranteed prioritization and handling of time-sensitive traffic � comparable to existing circuit-switched voice networks. While equipment producers tout compliance with open standards and protocols, interoperability is not guaranteed in this nascent industry. However, engineering advances are relentlessly addressing these challenges.

In fact, business concerns may prove to be a thornier challenge for those service providers seeking an early edge through wide-scale deployment of converged networks. Integration and scaling of back-office processes, such as provisioning, billing, and performance reporting, must be addressed. Emerging operational support system (OSS) and billing support system (BSS) solutions enable scalability of the converged network, but they alone do not address the shifts in processes and organizations required to capitalize on the new network order. Alterations to network operations and customer service are essential to monitor, diagnose, and resolve disruptions or performance issues. 

Service providers must rethink their entire approach to product development if they are to capitalize on the new service creation environment. Function-driven processes with poor executive visibility and long cycle times will squander the rapid development and deployment potential of converged networks. Providers must also recognize the need for significantly changed or entirely new channel relationships with partners who can develop, deliver, and sell innovative new service offerings for the new network infrastructure.

Perhaps the biggest challenges a service provider faces are (1) resisting the temptation to �wait and see� while the technology evolves, and (2) treating convergence as an engineering task. In response to (1), the technology is already �here� and, like it or not, many service providers are already charging ahead aggressively. Relative to (2), wiring a converged network and leveraging the capability to realize the substantial cost and revenue potential are two very different things.

ROADMAP FOR NETWORK CONVERGENCE
From a technical perspective, the exact nature of how and when softswitches, media gateways, feature servers, and other converged network elements will be rolled out is the topic of significant debate. Where in the PSTN will converged network elements be implemented? Which service providers will be the more aggressive adopters? What will be the rate of adoption? Will the transition take the form of a complete replacement of Class 4/5 switches or more of an evolutionary migration where converged network elements and traditional telephony equipment co-exist? 

Carriers are likely to converge the networks in overlapping phases � first by deploying a limited amount of new equipment in technical pilots � and to resolve specific circuit-switched capacity issues. Next, they may implement converged network elements to replace aging Class 4 and Class 5 switches, followed by a larger regional rollout. Successive rollout waves will eventually reach all corners of the network. Implementations will proceed at different paces, but one unchanging requirement will be the need to interoperate with the world�s remaining circuit-switched telephone networks.

Truly progressive service providers will recognize the need to attack the business challenges as soon as technical feasibility is proven within their networks. They will treat the converged network implementation as what it truly is � an organizational transformation effort. Diverse functions including finance, product management, network operations, field service, customer support, marketing, and sales will join engineering to provide critical, balanced input. The effort will be guided by an integrated cross-functional program plan, and progress through senior executive decision-oriented business reviews. Eventually, all core business processes will be touched, including provisioning, network operations, customer care, product development, and channel management. Those that wait for a full deployment of the technology before addressing these business areas will find their sizable capital investments in network convergence marginalized.

CONCLUSION
Achieving converged networks is not a matter of �if� but rather a matter of �when.� The financial and competitive advantages provided by the new technologies are too compelling for service providers to ignore. Challenges to success are numerous, but now more than ever, they are within the ability of the service providers to manage. Now that the technology is maturing, network operators must ensure that their organizations are prepared to maximize the potential from the considerable investment.

Doug Reinart is a PRTM Director based in Costa Mesa, California. Shekhar Somanath is a PRTM Manager based in Mountain View, California. PRTM is a leading management consultancy to technology-driven business. With over 1,200 clients and 6,000 engagements in its 25-year history, the firm focuses on helping companies structure their organization, their strategy, their information technology, and their core business processes for productivity and profitability. Visit PRTM�s Web site at www.prtm.com.

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