VOIP: Big Promise, Big Wait

Voice over IP has had its share of hype. Pundits, vendors, and (gulp) press would have us think all-VOIP networks are right around the corner, ready to handle voice, data, and video with unprecedented efficiency and cost savings.

Yes, true, VOIP's on the way, but it's going to take at least a decade to fully unfold, and penetration rates will differ between enterprises and carriers, according to this month's report from Optical Oracle, Light Reading's subscription research service.

The report, entitled "Deconstructing VOIP," provides a detailed timeline that estimates it will be late 2006 before VOIP ports outnumber traditional time-division multiplexed (TDM) ones on enterprise networks, and perhaps as much as a year after that for the same trend to hit carrier environments.

The long lead time to VOIP is due in part to the longer life cycle for telephony products in general. It takes many years for a generational upgrade of telephony products. Carriers will lag enterprises in VOIP adoption in part because of relative economics (carriers will stay capex-constrained for some time to come).

Driving factors also will differ for each of the two key VOIP markets:

  • Enterprises will see an advantage in reducing costs by replacing TDM links with higher-capacity IP ones. They'll use VOIP for trunking (connecting PBXs in different locations, using IP to carry “on-net” calls instead of sending them over the PSTN). They'll also aim for worker productivity applications resulting from VOIP adoption, such as unified messaging. But the report states that applications alone won't drive the market. In an environment where every dollar spent is scrutinized, VOIP's savings will need to encompass long-term advantages relative to hardware, software, and staff. Productivity gains alone won't cut the mustard.

    The report estimates that widespread adoption will occur in the 2006-2007 timeframe, enabled by the end of the depreciation cycle for equipment rolled out prior to 2000. By then, each of the IP PBX platforms will have gone through another two or three product iterations to achieve product and feature stability, and they will also provide a much improved feature set and application environment, relative to their TDM counterparts.

  • Carriers will look to VOIP for streamlined management and use of network infrastructure. They'll pick their spots for this, using a "cap and grow" type of phased migration, in which investment is stopped on older TDM gear, while newer IP-based equipment is introduced selectively. Applications might include diversion of Internet traffic off the PSTN (a trend that's already been underway for years), as well as replacement of Class 4 and 5 switches. Ultimately, carriers will collapse their tandem-switch layer by pumping IP or ATM traffic directly to the carrier core.

    As noted, carriers won't migrate to VOIP as quickly as their enterprise counterparts. Given the current cash-flow situation of most service providers, they are not going to be spending extravagantly for quite some time. The report says VOIP tandem switching (adding capacity to existing Class 4 networks) will be the first area in which VOIP catches on, in the 2004-2005 timeframe. Class 5 access switch replacement will follow during 2006-2007. Collapsing of the tandem layer into an entirely IP core will take 10 to 15 years.

    Migration is not as big an issue for carriers, since their networks are built on solid standards to ensure interoperability, eliminating that advantage for incumbents. Some of the privately held startups have very compelling technology, so they will likely make inroads if they can stay alive until the markets recover.

"Deconstructing VOIP" profiles the leading players in the VOIP market, including the following companies:

The report also examines the battle lines being drawn between telecom incumbents (Alcatel, Avaya, Nortel, Siemens, and the like) and data-centric insurgents (Cisco, Santera, Sonus, Telica, 3Com, etc.). The rhetoric has reached fever pitch over the past six months, as too many companies are chasing too few capital investment dollars (or euros).

Who will win? After a slow start, the incumbents are offering a better story, especially with respect to feature maturity, customer-controlled migration, and investment protection. But the jury's out on whether these features will be enough to fend off the channel strength of the insurgents (especially Cisco).

Meanwhile, in the carrier space especially, there seems to be room for startups offering solutions that address specific burning needs, such as the requirement to maintain both IP and TDM links simultaneously for a while. Other areas where specialized vendors have emerged include network address translation, security, and IP session control.

Victory for any vendors in the VOIP space won't be quick. The progress of VOIP will eventually change the way we communicate, but it will happen via a multi-year, generational upgrade -- not a big bang.

— Mary Jander, Senior Editor, Light Reading Optical Oracle's December report, "Deconstructing VOIP," is available to annual subscribers, who receive 12 months of access for $1,250. A single-user license for one copy of the report can be purchased for $400. For more information about the report or to subscribe, go to: www.opticaloracle.com.

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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teng100 12/5/2012 | 12:57:32 AM
re: VOIP: Big Promise, Big Wait "Other way around. Voice traffic over the Internet is easily tapped and recorded. Anyone who thinks packet networks are somehow subversive of centralized monitoring and control is completely, totally out to lunch."

Is it done today or take some time from now???
netskeptic 12/5/2012 | 12:57:30 AM
re: VOIP: Big Promise, Big Wait > Vonage and they pay about $40/pm for unlimited > local and long distance

??? Where are the savings ???

> ... Vonage uses conventional phones ...

So, they pay ILEC for access still.

> I am convinced that there is a big future in
> VOIP and this will be a threat to our RBOC's
> ILEC's CLEC's or whatever!

It may all come true in pre-DWDM times when an expensive ld transmission plant was a major cost factor and a big entry barier.

Look, out of major costs associated with long distance (local access, billing, local-to-ld-gateway and ld transmission plant) the only savings offered by VOIP are in slightly more effective use of ld transmission plant, which is a prety minor component anyway. So, unless a customer (1)already has suitable IP infrastructure in place and (2)the bulk of traffic is long distance to desstiantions with suitable IP infrastructure in place, there is no noticeable cost savings to justify switch to VOIP. IMHO, it would be limited to enterprize scale.

BTW, I got a major positive news item: Charter just raised Internet access fees accross the board by $5/mo. I hope that it is a demonstration of pricing power.



willywilson 12/5/2012 | 12:57:29 AM
re: VOIP: Big Promise, Big Wait Another family friend who lives about 7 miles away from my home uses a service called Vonage and they pay about $40/pm for unlimited local and long distance. Unlike FWD, Vonage uses conventional phones, but the fact remains that the voice quality is superb.


This is an intriguing service, but I'll make a few points:

- It's tech-heavy. You need an adapter and a router ($80 to start), plus God knows how you connect it to your inside wiring.

- I don't know if they support distinctive ring. I have two phone numbers on one line, and would not switch to any carrier that didn't support this.

- They don't support fax machines. Until they do, they have no chance of getting my business.

But I will give them credit for working with POTS as opposed to this thing that Jeff Pulver recently spammed this board about. Any "VoIP" that doesn't work with POTS is a joke.
sgan201 12/5/2012 | 12:57:29 AM
re: VOIP: Big Promise, Big Wait Hi Netskeptic,
In the case of Vonage, it is the local phone line.. The VoIP line to the Cisco ATA 186 is the local phone line. The conventional phone is attached to a Cisco ATA 186 VoIP adapter.
ATA 186 is connected to either DSL line or cable modem..

From To
Vonage to Vonage - no access fee

Vonage to POTS -> Vonage pay for 1/2 access fees on the POTS side.

POTS to Vonage --> The caller pay Vonage access fee.

Vonage has a pricing advantage versus AT&T, MCI, and Sprint because it is the local access line..

This is a very interesting concept and it might work from the business model standpoint...
netskeptic 12/5/2012 | 12:57:28 AM
re: VOIP: Big Promise, Big Wait To dreamer101.

Thanks for explanation, I misunderstood original desription. However, savings are minimal - you replace local access POTS with IP infrastructure (which has substantial costs associated with it too) + you have some minial savings on ld transmission, I would say that cost differential is not there to drive wide adoption for residential services.

I suppose Verizon can easily proved better service for better price once regulatios are lifted.



willywilson 12/5/2012 | 12:57:28 AM
re: VOIP: Big Promise, Big Wait Is it done today or take some time from now???


Get out of your laboratory! Within the past few weeks, it was reported that China executed someone for their Internet speech monitored by the government. Under the guise of fighting terrorism, the U.S. government is rapidly extending its monitoring of Internet traffic within this country.

The Internet is very, very easy for central authorities to control. The idea that it is somehow immune from central control was one of the many lies spread during the 1990s bubble.
sgan201 12/5/2012 | 12:57:26 AM
re: VOIP: Big Promise, Big Wait Hi Netskeptic,
Vonage do not pay for the DSL line or the cable modem line. The user has to have broadband access before they can subscribe to Vonage.. Vonage do not pay for the bandwidth..

The more interesting thing about Vonage is not the cost saving but the advance feature that come with the service: Voice mail and etc... The thing that I wish they have but not included (which is why I am not subscribing) is features provided by efax. Forwarding voice mail or fax via e-mail.

The second part is your phone number follow the ATA 186. You can carry this everywhere.

Price for LD is going to reach a point of irrelevance. The winner is people that can provide a package of features to support tele-worker and SOHO.

The problem with Vonage is

A) ATA 186 is subsidized by Vonage. They need the subscriber to remain in service for X number of months before they make money.

B) How long will Internet bandwidth remain free and widely available?? Look at recent peering issue between Cogent and AOL. Internet bandwidth is subsidized by the Voice call revenue and so on.. Access alone is not profitable..

Anyhow, Vonage is an interesting service that I am watching closely..
beowulf888 12/5/2012 | 12:57:21 AM
re: VOIP: Big Promise, Big Wait Lastmile:
I've heard of Vonage, but what is FWD? Is it a business or an acronym or an abbreviation? If it's a business, do you have a URL?

lastmile 12/5/2012 | 12:57:20 AM
re: VOIP: Big Promise, Big Wait Dear Willywilson,
I am not a tech expert. Fortunately, I have had a chance to experience the voice quality of FWD (jeff pulver) and vonage. The quality for both these systems is astounding.
Yes there are some features that may not suit an individual user but unlike those old days of (Dialpad.com) VOIP has come a long way and I wish this technology every success.
I do not have any reason to believe that jeff pulver spammed this board. His service is absolutely free but what his future intentions are is something that I am unaware of. Give FWD a try just so that you feel comfortable with the quality of VOIP. Do not call someone who lives in the US. Call someone 10000 miles away and you will appreciate the quality of your conversation. It is just like 'being there'
lastmile 12/5/2012 | 12:57:19 AM
re: VOIP: Big Promise, Big Wait Hello Beo
FWD is free world dialup. To the best of my knowledge you will get complete information on jeffpulver.com.
In case I am wrong, please look at the previous messages and you will find a message by jeff pulver. You will get his web address in that message.
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