A natural evolution for voice communications beyond the public switched telephone network (PSTN), VOIP Peering has been developing slowly, over decades. Now it is becoming widely available around the world, creating new economic models that will revolutionize phone-based communications.

Essentially a marriage of the PSTN and Internet Protocol (IP), VOIP peering allows entreprises and carriers to avoid the public network altogether and is quickly driving the costs of voice calls to zero.

Light Reading has documented many of the developments of VOIP and wide-area Ethernet, the two key building blocks of VOIP Peering, over the past several years.

The combination of VOIP and Ethernet, is driving the VOIP Peering revolution for carriers and enterprises worldwide. The addition of two supporting technologies -- electronic number mapping (ENUM) and session initiation protocol (SIP) -- enables true end-to-end IP-based calling, over the public Internet or a private network, eliminating the need for an intervening carrier.

Table 1: VOIP and Ethernet Growth Statistics

This report will explain the general terms and basics of peering, make the business case for VOIP Peering, and provide a snapshot of who uses this technology as well as who provides these services today.

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— Hunter Newby is Chief Strategy Officer of telx. Telx is an operator of international network interconnection facilities, including VOIP peering points, in New York and Atlanta.

The history of the formation of the physical layer interconnection points of the public Internet provides a case study for what is happening today with VOIP Peering. During the commercial growth phase of the public cloud, common interconnection points known as Metropolitan Area Exchanges (MAE) and Network Access Points (NAP) were established. At these physical locations ISP’s located routers and switches and interconnect to each other. This process of interconnection -- including a physical component as well as an a priori business case -- came to be known as “peering.”

From a network perspective the interconnection took place within this physical geographic location (MAE, or NAP), which ultimately became known as a Peering Point. Having a defined location (a specific address, floor or suite number) allowed the elimination of Bell local loops for disparate router connections, creating an “on-net” situation and saving the ISP’s a great deal of money and time.

In addition, the proximity also allowed the ISP’s to use the new developing standard of Ethernet to interconnect their routers. At this time, Ethernet use was limited by a distance of 300 feet between nodes. This process provided the foundation on which the ISP’s and all future IP packet-based networks were built.

The business case component of these developments gave rise to the term “peer.” Peers in this case are IP networks of comparable size or significance. Once the comparability criteria were met, the ISPs agreed to a free exchange of traffic; if not, one ISP charged the other a “transit” fee.

There are two main types of ISP peering, bilateral and multilateral, and there are two ways to establish the interconnection: private peering and public peering.

Peering Types

In bilateral peering, two parties negotiate directly between each other to define the terms of the peering arrangement. Usually driven by ISP’s with closed peering policies, these types of arrangements typically use private peering connections for the physical media linking equipment. Essentially another term for cross-connection, private peering creates a physical connection layer directly between the two parties for capacity and sometimes security reasons. The capacity reasons stem from bottleneck issues on public peering fabrics.

The other method of interconnection, public peering, is accomplished via an Ethernet switch (formerly an ATM link). Public peering via an Ethernet switch enables multi-lateral peering -- an agreement that governs all the members of a switch fabric. Multilateral peering arrangements involve an agreement by all members to send and receive traffic from the other members. Obviously, this type of agreement is driven by network operators with open peering policies.

There is also a third type, known as “paid peering,” which typically costs less than transit but does have fees associated with it.

ISP Peering is therefore a combination of economic agreements and an interconnection process at a physical point. ISP peering is a Layer 1 and 2 event, and the ISP’s do not place a value on the composition of packets. ISP peering does not happen on the public Internet itself, but forms the underlying fabric of the public Internet and allows it to physically function.

Bilateral Vs. Multilateral ISP Peering

In contrast to the Internet, the Public Switched Telephone Network (PSTN) has its own uses and definitions of Bilateral and Multi-lateral exchanges.

Bilateral Vs. Multilateral - Time Division Multiplexed Minutes

VOIP Peering

VOIP Peering is generally defined as the process of interconnecting two different VOIP networks with, or without, an underlying commercial relationship associated with the voice traffic.

VOIP Peering implementations differ from ISP Peering in several key ways. First, VOIP Peering can be described as an interconnection of IP voice networks on the public Internet itself, without an Ethernet switch fabric; the Internet itself acts as the fabric. Second, some versions of VOIP peering include financial aspects of billing for calls per minute over IP, as opposed to carrying all traffic for one flat rate. Although these definitions are not synonymous, they are grouped under the VOIP Peering umbrella, and they are quite different from the core concepts and processes of ISP Peering.

Another definition and service class of VOIP peering is available besides public Internet VOIP peering: Layer 2 VOIP peering. Carried over a non-public WAN, this is essentially a private voice network. The Layer 2 model carries all traffic for one flat rate. Geared toward carriers and enterprises that control access to the network, this most closely resembles ISP, or network operator-based peering.

There are differences, however. These popular Layer 2 VOIP peering models are distributed fabrics; in other words, they interconnect multiple Layer 2 switches in disparate locations to create a large private WAN. ISP peering has traditionally avoided that sort of architecture due to large capacity requirements on the switch (>10G) and bottlenecks on the long-haul links (<10G). The distributed nature of the Layer 2 implementations eliminates the long haul, making everything local to the closest switch -- similar to the public Internet, but without the quality of service and security concerns. The emergence of both public and private VOIP Peering models is fundamentally de-aggregating the PSTN and its economics.

Bilateral Vs. Multilateral - VOIP

In the VOIP world, bilateral and multilateral peering models generally follow the same rules as ISP peering with a few exceptions.

Bilateral peering is set up directly between two parties, typically two carriers or a carrier plus an enterprise buyer. This relationship has its own commercial terms for the termination of VOIP calls to one or more destinations. This is very similar to a typical contract for phone service, but as it is based on an IP-IP network interconnection, it is a form of peering. Bilateral agreements can be interconnected either via physical cross-connects, across an Ethernet switch fabric, or over the public Internet. The commercial agreement, as well as the terms for the interconnection, may or may not be included in the “minutes” agreement.

Multilateral peering of VOIP traffic involves an agreement between all members of a particular community, such as a VOIP peering fabric, to send and receive calls between all of the other members at no cost per call, or per minute. Multi-lateral by definition entails a free exchange of VOIP traffic. This type of relationship is governed by a master agreement, typically written by the VOIP peering fabric operator. Interconnections can run across a Layer 2 Ethernet switch or via the public Internet. Multilateral VOIP peering is enabled by two technologies: ENUM at Layer 5 and SIP at Layer 7. These technologies are used for number and address mapping so that gateways and devices can find themselves on the network directly.

In many ways the creation of private VOIP networks, along with the physical interconnection of those networks, resembles the creation of the public Internet itself. Once the common interconnection points are defined for the VOIP networks, they will find their way there and peer with each other. The goal for all VOIP networks, as it was for the ISPs, is to reduce costs -- once these networks become widely distributed, those networks (and companies) in the business of charging for phone calls will be driven out of the market by those networks that are not in the business of communications and see it only as an expense.

As with ISP Peering, VOIP Peering comprises two elements: the interconnection process and the economics. Certain VOIP peering interconnection processes occur at layers 1 and 2, in physical, geographic locations, while others occur over the public Internet itself. This is a threshold issue. Both are available today, but service providers and VOIP network operators, including enterprises, must ask themselves, “Do I want my voice traffic riding on the public Internet?” Depending on the type of calls traveling over the network, the answer may be, yes, no, or a combination of both. This is fundamentally a matter of risk tolerance: Is your organization willing to take the security and quality risks associated with the public Internet? If not, then you should be using a private-network, Layer 2 VOIP Peering service.

Bilateral Vs. Multilateral - VOIP

It’s important to note that VOIP Peering is not just a matter of eliminating the local loop and using Ethernet ports to reduce operating expenses (as it also was for the ISPs). We can call those factors “Access Economics.”

Beyond Access Economics VOIP peering is a way to enable free calling. No matter whom or where you call or for how long, you pay one flat rate. We’ll call that “Call Economics.” That rate may be embedded within the cost of the access. Others say billing will follow the same model the PSTN has used for decades: per-minute, with higher rates for certain remote call destinations.

This view reflects the carry-over of the old way into the new model. Believers in Call Economics tend to be new-generation VOIP application service providers, while the incumbent telecom carriers tend to be skeptics. Clearly, the per-minute billed model is being phased out in favor of an on-net, unlimited-termination model. These two models and mindsets will contend for a period of time, until those still paying for minutes become more generally aware of alternative free capabilities.

Call Economics

There are three basic ways for network operators to save money by using VOIP Peering.

The first two points apply to actual network operators; point three deals with Voice ASP’s (VASP), based on software used exclusively over the public Internet today. Within the carrier group there are two types of providers, distinguished by their revenue/service offering models: flat-rate service providers and per-minute billed, or usage-based providers. Carriers of both types may peer with other carriers in either group to eliminate inter-carrier fees.

The enterprise group can be broken into three categories: Those that pay either a flat rate or usage-based fees, and those that peer with other enterprises directly and pay a a transport provider rather than a voice service provider. The transport provider in this case is either an ISP (via the public Internet), or a Layer 2 transport provider. The enterprise user category is at a tremendous advantage because their business model does not involve charging people or companies for calling them; they have nothing to lose and much to gain by implementing VOIP Peering through ENUM/SIP.

The Peer-to-Peer group consists mainly of end users. To date no enterprise-class P2P VOIP service offerings have come to market. This P2P group can be compared to Instant Messaging services (IM). They are useful, convenient and free, but most enterprises aren’t likely to outsource their voice networks to them -- just as IM did not replace email.

There are three technologies driving the spread of VOIP Peering: Ethernet, Electronic Number Mapping (ENUM) and Session Initiation Protocol (SIP).

Ethernet is fairly well-known today and needs no introduction, but it is important to note the difference between Ethernet as an interconnection to a Layer 2 switch and Ethernet ports on a router. Therein lies the difference between a private VOIP network and a public one.

The emerging technologies ENUM and SIP are the higher-layer keys to an on-net voice world. (an older version of a VOIP gateway interconnection protocol, H.323, still exists, and is still used in the international wholesale minutes’ community; but it has been largely phased out over the past several years in favor of SIP).

ENUM

Essentially a way of linking a telephone number to an IP address on any type of device, Electronic Number Mapping is a system of mapping numbers to Universal Resource Identifiers (URI's). Created by the IETF, it is based on the Domain Name System of the public Internet. This system works well as part of a database that can store private numbers, such as those within an enterprise, and/or public numbers such as those of a CLEC or a Multiple System Operator. The purpose of the database, or registry, is to act as a central point for the call to query. Depending on whether the number being called is in the database, the query will return a yes or no response. If it’s yes, the call is connected, or peered, via either the public Internet or a private IP network depending on the users' preferred interconnection method.

The benefit of ENUM is that it can make these identifications and connections directly between the parties and their respective networks, without the need for additional networks or routing. In other words, it’s a highly efficient way of eliminating the costs associated with legacy, outdated systems and business models. Since this technology is available and can be implemented by almost anyone with a need, most if not all of the ENUM calling occurring today is settlement-charge free.

SIP

Session initiation protocol (SIP) is a signaling protocol for many communications services, including VOIP. It was also created by the IETF. Not a true stand-alone service, SIP is rather a way for VOIP switches to find each other. SIP “look-ups” -- the process of resolving gateway locations through SIP address queries -- may ultimately become a stand-alone service. SIP is very popular with providers of international wholesale minutes, which deal in destination routes into foreign countries. They make their money on selling airtime on a per-minute basis. While there is still some margin left in the international segment of the phone business, SIP connections are also used for setting up PRI (Primary Rate Interface) DID (Direct Inward Dial) circuits for local numbers using IP.

This type of service circumvents the need for local loops and the need to be interconnected to only one local phone carrier. The buyers of these services via SIP include other carriers, hosted/outsourced IP PBX providers, VOIP ASP's, calling card platforms, enterprises, government entities and universities.

ENUM + SIP

ENUM at Layer 5 works with SIP at Layer 7 to resolve switch, gateway and number locations, operating over the Internet or a private IP network. SIP can also be used alone to interconnect VOIP gateways, switches over the Internet or a private IP network.

Each layer and its function have different breeds of new service providers with different rates and connection methods. ENUM is basically for carriers servicing end users (LEC's and Voice Over Broadband [VOBB] service providers), as well as entities that use blocks of numbers (enterprises, government, universities etc.). SIP is mainly a carrier-to-carrier VOIP switch enabler, but it can also be used for IP PBX's to communicate with carriers or other IP PBX's directly.

The financial arrangements associated with ENUM and SIP vary slightly as well. ENUM service providers available today do not charge any per call or per-minute fee. ENUM and the Layer 5 specific service providers are essentially enabling free calls for their users. SIP is typically embedded within gateway address-resolution and protocol-conversion type services, which are billed as a package today.

IP PBXs using SIP as a means to communicate directly can facilitate ENUM, or direct connections between end users in different branch offices. Essentially they are building their own private VOIP networks. Initially the enterprises, government and university groups will interconnect the nodes on their networks; eventually they will seek to interconnect directly with each other. At that point the combination of SIP and ENUM will begin to deliver the maximum value of VOIP Peering.

Industry ENUM Initiatives

Industry ENUM Implementations

These users can be placed in to two categories: carrier and enterprise. Since both have incentives to lower their operating expenses, both are moving toward bilateral and multilateral VOIP Peering using ENUM. A closer examination of each group helps to understand their particular motivations.

Carrier VOIP Peering

Service Provider Types:

Bi-lateral VOIP interconnections are established between carriers engaged in a commercial transaction for minutes. These can include any of the above listed types of carriers. The IXC’s using SIP VOIP Peering to interconnect two gateways do so in a bi-lateral sense since they derive revenue from the minutes. Carriers that employ multilateral VOIP Peering between their networks do so to eliminate the IXC portion, taking calls from the end-user device on a local network directly to another end user on a different local network by connecting the two local networks. Using ENUM and SIP together, these connections can run over the public Internet or a private network.

Enterprise VOIP Peering

Solving provisioning and interconnection issues, bilateral VOIP Peering also gives enterprises access to wholesale terminating rates for off-net calls that might otherwise have been unreachable. Enterprises, governments and universities that use Multilateral VOIP Peering today do so either via the Internet or a private voice network. They pay for their own access, operate their own SIP gateways and query a central ENUM registry for every call they make. Therefore they take on more risk but reap greater rewards.

Every call that can be peered with another on-net device is free. The more peered calls & resulting ENUM match-ups, the more value accrues to those already using such interconnections.

Enterprise networks can directly interconnect via fiber or Ethernet without local loops and with no additional monthly cost. Enterprises can also share and pass corporate data and voice calls across a common private connection, apart from the public Internet, much more securely.

Table 2: VOIP Peering Providers