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.
- BroadSoft Inc.
- Santera Systems Inc.
- Telica Inc.
- Alcatel SA (NYSE: ALA; Paris: CGEP:PA)
- Avaya Inc. (NYSE: AV)
- Cisco Systems Inc. (Nasdaq: CSCO)
- Nortel Networks Corp. (NYSE/Toronto: NT)
- Siemens AG (NYSE: SI; Frankfurt: SIE)
- Sonus Networks Inc. (Nasdaq: SONS)
- 3Com Corp. (Nasdaq: COMS)
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.