A recent enterprise deployment consisted of a multi-site Layer 2 VoIP WAN to eliminate per-minute billed calls and then a very aggressive wholesale termination rate for everything else that is off-net. This enterprise realized a savings of $75,000/year by doing this. Their next steps are to find other enterprises (customers, partners, vendors) that built a similar VoIP network and establish peering relationships and encourage others to build similar networks so they can begin saving too. This is the reality of what is already happening.

The ITU has not aggressively pursued ENUM, or encouraged their carrier members to develop new revenue models. The position they have taken has now given opportunities for others to establish their own registries. Some of the new players on the ENUM registry side of the VoIP peering scene are from carriers themselves, but some are not. Where the independent registries’ roots are based has much to do with their business model and attitude about who should run ENUM and how.

Much in the same way the ITU has failed to deliver a clear strategy which gave rise to carriers themselves trying to create the policies, the carriers lack of a sensible offering to date has led to enterprise investigation and implementation of VoIP and ultimately ENUM. Enterprises are now taking their voice networks into their own hands and bypassing the carriers that used to provide these services. Now, all that is required for intra-company calling are Layer 2 circuits, hardware, and software; and it is all managed by the in-house IT department. That is the basis for peering, it’s what makes the most sense and is the way the money is moving.

As the legacy phone service providers try to regroup and come up with a plan many are bringing the IP side of the house in to those discussions. The ISP peering managers are now getting more involved in the discussions and planning of voice networks and service offerings since VoIP is now being seen more as IP and less as voice. One limiting factor in their quest for a successful plan may be that they are being told to protect the legacy revenue streams and model. The disruptive nature of IP peering in a PSTN model will not allow for that. The PSTN is simply inefficient. The implications for them are a quandary.

Still the challenge remains for the traditional telcos to chart a course. As these service providers from the old fashioned voice world try to figure if and how VoIP peering will work for them they may now have to also contend with the feeling of being outsiders to the IP peering world. There are many service providers that won’t be around in a few years, but don’t feel bad, it’s not that you weren’t cool enough for the club. It’s just that your business model became extinct. It was about a new way to generate profitable revenue from technology, not technology itself, or any specific group of people who seem to know what is going on. We all have a lot to learn.

The challenge for anyone entering the VoIP world to solve all of its problems is figuring out how to replace $200 billion dollars in TDM voice revenue with $2 billion in VoIP revenue (if we’re lucky) for the same amount of service and not have anyone notice, or complain about it. This will of course be discussed and debated in conferences, blogs and secret mailing lists, but can IP engineers working within voice service providers actually come up with the answers that make the CFOs say yes? This is yet to be seen and much easier said than done.

Looking again at history it is interesting to note that the economics and revenues from the public Internet were created from a new communications world that expanded rapidly within a void. Essentially it created and enabled new types of providers and new revenue for all of them. IP VPNs did take away some revenues from ATM and Frame Relay data networks, but that was a packet evolution anyway. Enabling VoIP peering is totally different. It is displacing predictable revenue (that Wall Street likes) that has been cranking out steady (mainly RBOC/ILEC and pre-bubble) returns to investors for a long time. The CLECs and IXCs were on the rocks before VoIP because of over-investment, over-spending, over-building, and mismanagement anyway, but now this is it. It’s over. But, what does it become?

Most network engineers don’t spend their days thinking about the balance sheet, and in planning the voice Internet that is a key component. The bulk of the core voice revenues today are not generated from feature-rich services and it is that bulk that is the non-complex, simple phone service that enterprises are taking control of and making on-net. That revenue will not be replaced with revenue from the same service in a different package. New services are required to generate new revenue to make it look like an even trade, but make no mistake about it — something is going away permanently and many new things will be created.

The real money (in America and many other places) is in the corporations. At a certain level these entities are focused on only one thing, shareholder value. Cutting costs drives that value up. Enterprise VoIP peering cuts costs. The technology exists and they will do it for the money. That will leave many carriers out. A lot of IP minds now in VoIP think-tanks imbedded within legacy voice carriers are potentially going to be thinking their way right out of a job. Transport networks are dumb and not complicated enough for them to try and become the masters of, but the numbering issues are much more detailed and therefore mystifying. (Being a master of technical mystery brings a higher value). The problem is that now the enterprise IT director can figure it out too.
Actually it’s the dumb transport that will become the ties that bind the corporate VoIP WANs and as the technical bumps get smoothed out of the numbering issues, the enterprises will need less and less traditional carrier services.

All of this is not to say that new service(s) will not be created, or just evolve over time, that add value, generate positive revenue and can fill the substantial hole left from traditional phone revenue, but that’s going to be a big hole. Ring tones are now a $4 billion a year business and no one really planned for that, but it is a drop in the bucket compared to what is going away. The landscape is changing rapidly and things that applied and succeeded in the past might not necessarily be the same this time around. What is critically important for success is the collection and sharing of accurate information with all parties involved. That is the only way to avoid repeating others’ mistakes, be aware of what is really happening in the industry and stay on track to running a business that makes sense. IT

Hunter Newby is chief strategy officer at telx. For more information, please visit www.telx.com.

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