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Feature Article
July 2002

Softswitch -- Increasing Margins In A Competitive Marketplace


The emergence of the softswitch architecture as the model for next-generation networks underscores the maturity and adoption of packet telephony technology in the telecommunications industry. Softswitches are meeting industry demands for robust architectures that are flexible, scalable, and cost-effective.

Problem: Increased Competition Decreases Margins
The telecommunications industry is transitioning from a monopolistic to a competitive business model in local, national, and global markets. The deregulation of telecommunications industries in an increasing number of countries around the world has introduced profound changes in the way service providers and carriers run their businesses. As competition takes hold, consumers become more demanding, looking for newer services and cheaper rates. Service providers respond by reducing prices and expanding their service portfolios.

From the service provider and carrier perspective, all of this results in decreasing margins and more customer churn. They need the ability to offer new, advanced, value added services in a timely manner to create new revenue streams and retain customers. To make matters more complex, they need to do this while reducing costs. Thus, the two critical factors driving the telecom market in this competitive era are:

  • Time-to-market and time-to-revenue for new services.
  • Reduction in capital expenses (CapEx) and operational expenses (OpEx) to improve margins and shorten return on investment (ROI) payback periods.

Solution: Softswitch Architecture
In order to meet the requirements of a competitive marketplace, service providers and carriers seek solutions that:

  • Enable bundled service offerings using a common infrastructure;

  • Facilitate rapid deployment of new services at lower costs than traditional PSTN networks;

  • Reduce OpEx and CapEx vis-�-vis circuit-switched networks;

  • Facilitate evolutionary migration to IP networks while preserving investments in TDM equipment.

Softswitches meet these criteria, as they allow for tight integration with the PSTN, quick creation of services, rapid deployment of equipment, simple management, and effective migration paths from PSTN to packet telephony networks.

Rapid Introduction of Enhanced Services
In times of increased competition, the ability to quickly refine and bundle services, thus staying at the cutting edge of the market by providing premium and customer-retaining (�sticky�) offers, is crucial. Migration to softswitch-based networks enables carriers to rapidly introduce enhanced global hosted services, such as voice virtual private networks (V-VPNs), centrex, call centers, conferencing, calling card, voice mail, unified messaging, and more. These services are especially attractive to the lucrative enterprise market, which � according to Probe Research � will account for 45 percent of all VoIP traffic by 2005.

Reduced OpEx
Softswitch architectures support a convergent voice and data network, thereby reducing OpEx, e.g., costs of feature upgrades and service creation, network management, and maintenance. Moreover, softswitch architecture provides service flexibility and enables a more efficient network topology, as network elements and servers can be deployed only where they are needed and only with the required functionality for a given location. Centralized servers can be used to distribute services and provide centralized management to remote locations.

Reduced CapEx
Modular softswitch architectures enable a low-cost, entry-level solution, which can be expanded cost-effectively in accordance with traffic volumes. Decomposition of gateways into control and media layers allows the deployment of less expensive media gateways that are centrally controlled via media gateway control protocol (MGCP). Since a single controller can manage several media gateways, the carrier�s overall capital investment in establishing or expanding the network is decreased.

Inherent advantages of softswitches � that make them the ideal tool for helping carriers to prosper in a competitive environment � include:

� Softswitch-based service platforms are both modular and scalable. This means that the cost of entering new markets � either geographically and/or in terms of types of services � can be significantly lower than when using the �one size fits all� circuit-based switches of the PSTN world. It also means that carriers can grow their networks, platforms, and service capabilities as customers and revenues materialize in these new markets.

� Softswitch-based service platforms can provide services that are location independent and distance insensitive. Services in Tokyo, Beijing, and New York can be served off of a platform located in Berlin. Calls between Tokyo and New York can cost almost as little to the carrier as calls between New York and New Haven.

� Global hosted business services served off of softswitch-based platforms are neither inherently local or long-distance � they are both, to the benefit of global enterprises. The incumbent local carrier, with its Class 5 switch functionality, has no inherent advantage in providing Centrex services to the likes of Mercedes Benz offices around the world; nor does the incumbent long-distance carrier, with its Class 4 functionality, have any advantage in providing voice virtual networks to IBM campuses in Raleigh, Boca Raton, and White Plains.

  • The same softswitch that is used to provide enhanced services can be scaled up to manage large-scale media gateways around the world to provide �carriers� carrier� wholesale services including carrier interconnect, trunk replacement, and packet tandem switching, blurring the distinction between network providers and service providers and further enabling carriers to fine tune their business models and optimize profitability.

  • Softswitch-based service platforms support service creation environments that enable rapid development, customization, branding, and fine tuning of value-added services by means of standard visual programming languages and Web development tools (very different from the scarce and expensive resources needed to program new services on a �hard switch�). This means that softswitch-equipped carriers can develop new services that are custom tailored to target markets � both faster and less expensively than �hard switch�-based carriers.

  • Softswitch-based platforms can support convergent voice and data services that cannot be supported well (if at all) using circuit-based switches. Some of these services are high margin, value added, PC-centric applications, such as Web-enabled call centers and Web-managed conferencing with document sharing.

  • Softswitches that are truly multi-protocol can bring the benefits of SIP (new endpoints/clients and rapidly developed, innovative services and applications) and MGCP (denser, larger scale, lower cost per port trunking gateways) to large deployed networks using H.323. Softswitches should interoperate with and extend existing H.323 networks in order to provide an extensive global calling reach and revenue generating capacity upon first deployment.

  • Softswitches that provide interoperability with legacy equipment and interdomain capabilities can be deployed virtually seamlessly in conjunction with the existing network. In this way, a new network can be built gradually in accordance with evolving business requirements, while the existing network continues to operate and generate revenue.

The deployment of softswitch-based, next-generation networks positions carriers to compete in times of shrinking margins and costly customer churn. Softswitches can be used to rapidly create fine-tunable service bundles comprised of premium, �sticky� enhanced services as well as lower cost basic services � all while reducing OpEx and CapEx costs by a more efficient infrastructure.

Arnold Englander is vice president, product strategy and planning at VocalTec Communications Ltd. VocalTec is a leading telecom equipment provider of packet voice solutions for carriers and service providers. For more information, visit the company�s Web site at www.vocaltec.com.

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