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Feature Article
June 2004

The Business Case For Migration To Next-Generation Networks


Major carriers around the world face the challenging task of migrating their existing legacy networks to an IP-based next-generation network (NGN) infrastructure. Carriers realize that their current TDM networks are no longer sustainable going forward. Their current networks are expensive in terms of capital and operational expenses, and inhibit competitiveness due to the cost and long amount of time required to implement changes. Furthermore, legacy switch vendors are beginning to announce end-of-life for their TDM equipment.


With a full appreciation of the technological and business benefits of Voice over IP (VoIP) and NGNs, carriers are no longer debating whether to migrate their TDM networks, but rather are seeking the most effective way to reach the �promised land.� In fact, migration from circuit-switched TDM to IP-based NGN is already underway for several major long-distance carriers around the world.

This trend is clearly reflected in the rising worldwide demand for VoIP-based solutions. A recent report by Infonetics Research projects a CAGR of 42 percent as the global carrier VoIP equipment market grows from $1.2 billion in 2003 to $5 billion in 2007. This article examines the business case supporting carriers� decision to migrate to NGNs based on VoIP technology, and explains how NGNs will enable carriers to achieve their current and future business goals in a highly competitive marketplace.

Real Business Drivers for Migration to Next-Generation Networks
First of all, NGNs offer relief for the current ailments of TDM networks. They provide for a tremendous increase in scale and are much easier to manage than traditional circuit-switched networks. This is particularly important for incumbent long-distance carriers that operate very large networks. VoIP technology is mature and proven, and carriers recognize the economic and technical benefits of utilizing this technology.

NGNs will play a major role in meeting industry demands for robust architectures that are flexible, scalable, and cost-effective. NGNs will enable carriers to improve margins and capture market share in competitive and deregulated markets. Carriers can reduce opex and capex for their underutilized voice and ever-growing data networks by migrating to a convergent IP infrastructure, supporting different types of access networks and end user devices.

Migration to an NGN provides immediate operational savings and efficiency improvements, significant enough to justify initial investments. For example, a recent analysis demonstrated that using an IP/softswitch architecture to replace a TDM switch of equal capacity would shrink the space required in the central office from 28 racks to two. Reductions in air conditioning and power costs alone will allow carriers to recoup the cost of a new softswitch in only 18 months. In comparison, the cost of most circuit switches needed to be spread over more than 10 years.

Another inherent advantage of IP-based systems is that they enjoy the same short evolution interval as computing systems. Whereas TDM systems have historically provided evolutionary shifts in technology at five- and ten-year intervals, IP-based systems advance in conformance with Moore�s law � i.e., processing capabilities double every 18�24 months for the same level of capital investment. This translates into increased efficiencies and enhanced capabilities for the creation of new revenue-generating services at much shorter intervals than in legacy systems.

Open standards-based network elements (e.g., SIP) and interfaces provide the carrier with greater flexibility and choice with regards to network systems vendors. NGNs will enable carriers to create new revenue opportunities and get to market quickly with attractive and innovative multimedia services that are not possible in the TDM environment. No longer �locked� to a particular switch manufacturer, carriers can develop their own customized services using standard tools, such as Java SIP servlets, for specific target markets. SIP also allows for standards-based interoperability with application servers from different vendors, as well as connectivity with other carriers� networks.

Already, carriers need to be able to support IP traffic originating from a growing multitude of sources. Increased VoIP traffic is coming from other national or international long-distance carriers, residential local networks, enterprises, and mobile networks, all of which are migrating to IP-based voice infrastructures. The growth of prepaid VoIP calling cards, IP Centrex, and IP PBX are examples of applications that are driving new IP minutes.


Before enjoying the benefits and long-term savings associated with NGN networks, carriers must address several new challenges in getting these networks up and running. While these issues may appear to be purely technical, closer analysis shows that they quite often boil down to business issues.

� New pricing/revenue models: Carrier voice network revenue structures have traditionally been built around differentiation between minutes of use and the types of minutes. For example, wireline long distance may be priced at 3 cents per minute, wireless minutes may be priced at 8 cents per minute, and 800 numbers may be priced at 18 cents per minute. This pricing model is no longer relevant for IP-based services. While carriers want to take advantage of the economics of IP telephony, they need to accommodate rate structures that are shifting from minutes of use to include access connectivity and bandwidth consumption. Call detail records (CDRs) for carrier-to-carrier billing and traffic management must still be maintained regardless of the rate structures. At the same time, carriers must establish new technology models for interconnection that overcome security concerns created by a more open architecture. As mentioned above, SBCs could play an important role in providing CDRs for carrier billing.

� Quality of Service (QoS): Voice is still the killer application; therefore carriers must ensure QoS over their core MPLS networks, which can be configured to give priority to voice and important signaling packets. While MPLS technically allows for monitoring of transmission, most carriers will not allow application-based bandwidth shaping on their network by another carrier. Thus, traffic management turns into a business issue. To begin solving these issues, IP interconnection points must be controlled at the deepest levels of the protocol.

� Security: Security in carrier networks involves business relationships. For example, carrier CIOs will oppose providing access to internal routing tables between enterprise IP networks to the public networks due to the sensitivity of that information from a business perspective. Another difference between TDM and VoIP-based PSTN security is that TDM networks use SS7 signaling point codes that are difficult to hack. However, once these codes are turned into IP addresses or SIP URIs in an NGN, they are much easier to hack. IP security issues must be addressed using border elements controlled by centralized routing logic to prevent fraud and new phenomena like �voice spam.�

� Routing: Routing and management in NGNs is a crucial function. Intelligent and flexible routing can increase throughput and quality, while lowering operational costs. In general, intercarrier business is about arbitrage. Since arbitrage permits and encourages dynamic routing, traffic exchange (peering) must be accommodated without exposing routing algorithms and IP addresses to customers/peers to ensure business security and avoid redundant provisioning. This type of routing involves much more than network address translation.

� Interoperability: Even in an �all-IP� world, interoperability is still an issue. Multiple variants and flavors of the same protocol (even SIP) are not always interoperable. Carriers must ensure that their voice customers can connect to other customers both internally and externally, since practically anyone can create a SIP end-point and send traffic.

SBCs will play an important role in supporting the shift in carrier networks. Improvements to SBCs already in use between the enterprise and the carrier could help to prevent exposure of sensitive information between IP networks, while still providing information like CDRs for carrier billing. Additional and enhanced security measures will be required.

By meeting the above challenges, carriers will open the door to a plethora of new business opportunities. Carriers can deploy multimedia IP-based services at the network edge, accelerating provisioning timetables and reducing costs. Voice quality over broadband networks could easily exceed that of TDM networks � meaning that carriers could charge for CD-quality high-fidelity voice (e.g., use it to broadcast concerts). Carriers must take a hard look at their business practices and network management strategies if they want to exploit the full potential of IP-based NGNs.


Gradual, Painless Migration from TDM to NGN
Despite the strong case for migration to NGN, carriers� business realities dictate a structured, phased migration strategy with minimal operational disruption. Forklift upgrades are not feasible due to lack of resources and the organizational �pain� they cause. 

Carriers require no-risk migration of their core networks to NGNs, using an open, standards-based solution. Migration strategies must meet the following critical requirements:

� Seamless PSTN/SS7 and legacy VoIP connectivity with support for IN services to secure existing revenue streams;
� Service creation capabilities to target different market segments, e.g., calling card services for consumers and VoIP VPNs and conferencing for enterprises; and
� Cost-effective and non-disruptive transition process that is �transparent� to end users.

The business case for VoIP is based on immediate, substantial operational savings and reduced capex in the short term, coupled with the potential for increased revenues and market share from multimedia, real-time IP services in the longer term. This business case, together with the continual improvements and maturity of VoIP technology, have brought carriers and service providers to the conclusion that NGNs are the best way to realize their business strategy. The remaining question for most carriers is how best to migrate their current TDM infrastructure to NGN. By combining the right network solution with a well-planned migration approach, carriers will be able to maximize their existing investment and maintain service levels, while creating the infrastructure for new services and revenues in an �all-IP� world.



Dr. Ramesh Lakshmi-Ratan is senior vice president of strategy at VocalTec, a leading telecom equipment vendor of packet voice solutions for next-generation networks. An innovator and provider of VoIP solutions since 1995, VocalTec�s equipment is commercially deployed in over 130 countries. For more information, please visit www.vocaltec.com.

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