Almost eight years ago I penned a series of articles for a fledgling Internet Telephony® under the moniker of The Next Wave. Back then the articles were focused on the emergence of a new and untested technology VoIP. The articles were mostly predictions of what could be done with the technology. It was this VoIP technology that in the beginning was in search of a market that started the big switch to an all IP telecom world. It has taken almost ten years, hundreds of companies, and thousands of people for VoIP to reach the mass market and achieve moderate acceptance. Chalk that up to market inertia. Back then we were pioneers talking up an unproven technology without a market and on the surface, a slim chance to succeed.
The VoIP Dream
Many in the telecom establishment decried VoIP (define - news - alerts) as just a toy, a fad that will pass. However a few stalwart souls stayed the course and a series of companies were formed, evolved, were absorbed by the big guys, or failed; but along the way they fundamentally changed the way we communicate. This all occurred against a backdrop of constant change in the telecom market, times which included the Internet boom and bust and the long, long telecom nuclear winter, the rise of the dumb network and now IMS, IP Multimedia Subsystem. Does the VoIP dream of 1997 resemble what we use as services today?
Interestingly enough, yes. We envisioned inexpensive, broadly available telecom with a global reach on your choice of device. Examples range from simple replacement voice services like Vonage and AT&T to truly innovative telecom like the emergence of presence (you can know whether you call will succeed before you place it), the use of wideband audio (vastly better sound than traditional telephony) and, perhaps, the integration of video. Skype and GoogleTalk are interesting because theyve innovated. So why revisit the past to discuss the future? As experience has proven, past history can be an indicator of future events and history can provide insight to guide us smoothly through the next wave of innovation and evolution.
Broadband Demand is the Catalyst for Change
Fast forward to 2000, the broadband access boom that started then is now a startling 28 percent annual growth rate, according to a February 17, 2006 report on the Telecom Market from the Telecom Industry Association. This growth in broadband access, driven primarily by the consumers desire for high-speed Internet access has enabled market conditions that favor consumers accessing new broadband rich services and content. Internet consumers naturally gravitate toward what OVUM/Point Topic analysts refer to as broadband value added services or BVAS. The growth in BVAS from 2004 to 2005 was modest at eight percent, but thats eight percent of the worldwide broadband access market of over $39B. These broadband value added services are both audio and visual in nature such as peer to peer sharing of CD audio and movies that take advantage of all the bandwidth and QoS that a service provider whether DSL, cable or mobile can deliver.
What is emerging along side of these base drivers are newer bandwidth consumptive services, which include traditional VoIP, Streaming Video, IPTV, PCD (personal content distribution; think Sling Media and Orb) and Video conferencing, just to name a few. An article or two could be devoted just to discussion of the market impact that these BVAS create, but that will have to wait til later.
A Clash of the Titans? Or Symbiotic Entities?
All of this frenzy of multimedia content and value added services generate new revenues, revenues not necessarily shared with the broadband provider that enabled their creation. Is this free use of the DSL or cable broadband pipe an inequity that must be corrected or is it just an unintended consequence of market evolution? It is the customer demand for value added services that drives the IP telecom market opportunity. The truth is that the traditional centrist walled garden telecom provider and the emergent virtual telecom/Internet moguls both want to get all of the services revenues for themselves and not share the wealth with each other. Both have gone out of their way to create totally different end-to-end telecom architectures for offering broadband value added services (Figure 1).
The quintessential examples are walled garden telecom approaches to application development and newer approaches like Skype. The critical innovation of the Internet was creating option value for independent developers, which is core to the end-to-end principal in the Internets design. Option value here is the ability for any application developer of a broadband value added service to provide it in a consistent manner across a widest possible range of customers. That option value has produced Yahoo!, Google, Skype, Flickr, Myspace, Wikipedia, etc. Its independent of walled garden carriers and their emergent platforms like IMS, depending only on raw bandwidth and connectivity.
Yes, if you have monopoly or duopoly in access providers you may be subject to some form of arbitrary restriction, but thats a short-term phenomenon that will be cured by more access providers, including several forms of wireless access, such as WiMAX and High Speed Download Packet Access (HSDPA). From the walled garden side, they are promoting IMS a broad, horizontal architecture that is migratory in nature providing a path from TDM toward an all IP architecture. IMS provides network management, a development environment, and a billing platform. IMS is essentially open. Successful deployment will depend on applications much more than on the actual technology. Operators who use their IMS infrastructure to enhance option value for independent developers are likely to succeed while operators who follow their historic closed garden approach are likely to only roll out fewer competitive services and risk being left in the dust by the Virtual Telecom operators (Google, Skype, et al.).
Skype is a vertically integrated proprietary solution, which is totally dependent on the availability of operator supplied bandwidth. Both claim to provide an open platform to enable BVAS. Under closer inspection one is dependent on the other, the analogy here is airlines to airports. Airlines do not own the terminals where they operate and airlines run flights only when the airport is open. Airports make money on the traffic that flows through them and on the leases with the Airlines. Without the broadband service provider (the airport) the Virtual Telcom operator (the airline) can not exist. Conversely without the Virtual Telcom operator (the Airline) there is no traffic (Airport revenue). So while a recent Moriana report states there will be a clash of two titans, the Legacy Telcos versus the Internet Moguls, in the longer term the Internet Moguls/Virtual Telecom operator needs to either eliminate the dependency on walled garden bandwidth or come to financial terms with the Legacy Telcos. And, the
Legacy Telco needs to evolve broadband value added services.
In the near term, the walled garden provider really provides only bandwidth and without enabling the value added services that the Virtual Telecom operators provide can not hope to keep and attract new broadband customers nor reap money for the sale of more and differing types of bandwidth. One recent proof point of the clash and its potential consequences is the November public statement by the CEO of SBC (now AT&T), Edward Whitacre asking for a two-tiered internet with classes of service, with different levels of QoS. End users and Virtual Telecom operators would have to pay the road tax for using walled garden pipes. Could this kill the Virtual Telcom operators and dampen consumer demand?
Winning By Increasing Option Value
For the future, the market needs an open architecture for broadband valued added services; one that is not walled in by the provider nor tied to a specific proprietary implementation. These architectures should increase option value not decrease it. Neither group has this perfected today. So who wins in the long run? Consumers want solutions. Application developers of broadband value added services who can most rapidly address the needs and service providers that can bring them to market effectively stand to win. We have seen this cycle of innovation and evolution before, remember the old Advanced Intelligent Network (AIN). All applications would be built using AIN standards, centrally deployed using intelligent peripherals. There were some deployments but the AIN world was complex and closely held. At the same time a parallel market event happened, Computer Telephony, an unintended consequence of the PC revolution. This revolution spawned hundreds of companies and billions of dollars providing
services and applications that were connected to the network core and used its resources but lived out on the edge.
Did IN lose or were they just run over by a more open technology? Was it a technological/architecturally issue or was it simply market evolution? IN didnt lose and it didnt have a lock on the market. A la the walled garden pipes and the virtual telecom operators need for bandwidth, IN was overrun by the rate of change demanded by consumers in the market itself. The walled garden operators face the same risks today versus Virtual Telecom Operators. The cycle is happening over again, right now with consumers driving demand for broadband value added services, especially Internet-based VoIP (iVoIP), Video everything over IP, and IPTV. To maintain rapid market evolution, broadband value-added services depend on an open internet philosophy, broad option value, on unregulated, dumb bandwidth, and lots of it. This story is far from over so keep tuned in for more of the next wave.
Mike Katz is director of product marketing for NMS Communications. For more information, please visit the company online at www.nmscommunications.com (news - alerts).
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