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VOIP Peering: Incumbent Killer?

Light Reading
News Analysis
Light Reading
6/16/2005
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NEW YORK -- Stealth Communications Inc. is aptly named. The tiny company is 10 years old and has only eight employees. It isn’t widely known outside a small circle of service providers that use its technology.

All the same, it could turn out to be an incumbent killer.

Stealth for years has been developing its Voice Peering Fabric (VPF), which many experts say is now one of the largest VOIP peering points in the world. VPF and other VOIP peering points offer a way for providers of VOIP services to link networks and exchange traffic, routing it around the more expensive PSTN (public switched telephone network) and avoiding the less secure public Internet.

What's interesting is these services are becoming more sophisticated. Yesterday Stealth announced it is adding more features to help VOIP upstarts use VOIP peering points to circumvent the PSTN and the public Internet (see Stealth Intros VOIP Peering).

At telx’s Customer Business Exchange (cbX) conference, Stealth launched its ASP Market, which will add a range of important telecom signaling and directory services, including 411, 8xx services, caller ID, local number portability (LNP), and SS7 (Signaling System 7). Initial partners in the project include SNET Diversified Group, Syniverse Technologies Inc., and VeriSign Inc. (Nasdaq: VRSN).

With more PSTN-like features like caller ID and LNP being built into VOIP peering points, it will become less important for services providers to access the PSTN -- and this threatens the business of many incumbents.

”Established wholesale providers and incumbents such as AT&T and BT really don’t like this; they can become completely disintermediated,” says Caroline Chappell, an independent analyst and author of a recent Light Reading Insider report on service delivery platforms (SDPs). “This could change the whole structure of how traffic is passed around.”

Stealth CEO Shrihari Pandit says the company’s VPF processed 2.5 billion minutes of VOIP in 2004, and he expects it to do 9 billion minutes this year.

”As VOIP starts growing, you want to redeem the risk of going over the public Internet,” says Pandit. “VOIP networks will eventually replace the PSTN, but they need more interconnecting.”

Stealth also operates one of the largest ENUM databases, offered as a free service to its customers (see ENUM Heads for Primetime and Carrier ENUM Gains Ground). The database now holds 6.5 million numbers, says Pandit. He adds that Stealth is profitable and does $10 million to $15 million in revenues per year, charging service providers a flat per-port monthly fee to connect into the peering point.

Skeptics point to Stealth’s tiny size and the fact that VOIP peering really doesn’t make a lot of money. They also point out that VOIP peering points rarely consist of more than a few Ethernet switches cobbled together with some database software, making the barrier to entry low.

But that's precisely what makes the trend scary to the big telcos, and it’s clear the approach is growing -- like a weed. Stealth isn’t the only one working on VOIP peering fabrics, even though it’s one of the biggest. There are many different forms of VOIP peering. Other peering services from InfiniRoute Networks Inc. and Interoute Telecommunications Ltd. cater to different customer bases. For example, Interoute focuses on connecting incumbent TDM networks to VOIP networks, says Chappell.

Yet another threat to incumbent voice providers, notes Chappell, is if large enterprises start using the technology to create their own large VOIP networks.

There are even more VOIP peering services from providers such as Syniverse and VeriSign that involve specialized database, security, and signaling functions. Stealth caters primarly as a traffic exchange for VOIP pure-play operations such as Packet8 and Net2Phone Inc. (Nasdaq: NTOP).

Telecom experts expect these VOIP connection services to proliferate, offering ever more options and ways to exchange traffic and data.

”VOIP peering is a multi-layer proposition,” says Hunter Newby, the chief strategy officer of telx, which hosts connection points for major services providers. “In order to derive the maximum benefit from it, you first need to understand what you want to do with it. With VOIP peering, like many other things, if it makes sense, solves problems, and saves network operators money, then it will succeed."

— R. Scott Raynovich, US Editor, Light Reading

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OldPOTS
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OldPOTS,
User Rank: Light Beer
12/5/2012 | 3:10:26 AM
re: VOIP Peering: Incumbent Killer?
rj - you should get the post of the day award.

All of us with years of experience (scars) in dealing with the RBOCS can usually understand and spot the RBOCs SOP when dealing with diruptive technologies (e.g. HeavyDuty #27). We can usually spot the RBOCs next shrewd business move to stifle the competition. But this one eluded me until you mentioned it. Now the Texas legislative moves all make great sense. They will get their way in Congress/FCC in a few months dividing up the landscape and let the eye pee'ers generate so much more additional revenue for them. Both as service providers and service haulers.

Thanks!

OldPOTS
rjmcmahon
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rjmcmahon,
User Rank: Light Beer
12/5/2012 | 3:10:27 AM
re: VOIP Peering: Incumbent Killer?
There's this interesting little battle going, call it, "If you can deliver phone via cable, then I'm going to deliver tv over the phone line and let's see who cries, "uncle," first."

That is the party line.

A cynic might suggest something different. Maybe the phone execs and the cable execs got together on a boat one evening and negotiated a way to get rid of the government regulators and those controls over prices. This requires the telcos and cablecos feigning competiton and claiming market forces are generating the price signals when, in reality, the markets have been carved up. The end result will be both having a position of private and *unregulated* monopoly over their respective markets.
HeavyDuty
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HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:27 AM
re: VOIP Peering: Incumbent Killer?
"So why the sudden interest in IPTV (telcos have tried video for years with no success, so why the renewed, urgent interest?), FTTN (SBC Project Lightspeed), FTTP (Verizon Fios), etc. if there is minimal revenue exposure and a long history of failure in video?"

Interesting change of subject: VoIP to IPTV... But, hey, let's go there.

There's this interesting little battle going, call it, "If you can deliver phone via cable, then I'm going to deliver tv over the phone line and let's see who cries, "uncle," first."

"...FTTN (SBC Project Lightspeed), FTTP (Verizon Fios), etc. if there is minimal revenue exposure and a long history of failure in video?"

SBC and Verizon's charge into end-to-end fiber for video (including IPTV) delivery has been the epitomy of, "when all is said and done, all lot more is said than done." Verizon has only started in some very exclusive neighborhoods, and SBC is still selecting vendors.

SBC and Verizon recently were set back in their quest for tv delivery, here in Texas, by the unexpected failure of the legislature to pass the favorable bill (that the LECs lobbyist had had hand delivered to the legislature) to ease restrictions on tv signal delivery for the RBOCs. Oops!

"Why did AT&T go VoIP if they are trying to 'outlast' it?"

AT&T is currently lobbying federal regulators to let SBC buy it. In the meantime, a corporations gotta make money.

"Why is BT investing $19B in converting their network to an IP structure if they are trying to 'outlast' VoIP?"

Why is SBC, Verizon, etc... investing in same? Because if some folks insist on getting the latest thang, wouldn't it be best if they could get it without changing vendor; best for the vendor!

"Wouldn't the phone company make more money by encouraging VoIP use? It is also easier to collect from a single service provider than a bunch of customers."

The LECs are in Washington right now trying to convince regulators that they need less regulation now that there's sooo many service alternatives to THE phone company; similar to the song and dance they did for CLECs (you can still find a list of CLECs in the front of your RBOC provided phone book; they publish that info 'cause they're feeling real threatened by CLECs).

A few keystrokes by a data entry clerk, making one dollar an hour in Banglore, and the rest of the billing process is automated; really no bother at all.

"Best of luck with this."

Gee, Thanks!
stephencooke
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stephencooke,
User Rank: Light Beer
12/5/2012 | 3:10:27 AM
re: VOIP Peering: Incumbent Killer?
"They're trying to outlast, not encourage, VoIP use."

So why the sudden interest in IPTV (telcos have tried video for years with no success, so why the renewed, urgent interest?), FTTN (SBC Project Lightspeed), FTTP (Verizon Fios), etc. if there is minimal revenue exposure and a long history of failure in video? These are incredibly expensive programs (many $billions) that RBOC management wouldn't consider if there wasn't a gun to their heads.

Why did AT&T go VoIP if they are trying to 'outlast' it? Why is BT investing $19B in converting their network to an IP structure if they are trying to 'outlast' VoIP?

If your previous statement is true:

"The local phone company may not get a check from the consumer to it's voice group when a customer choses VoIP, but it gets a check from the VoIP service provider to the leased line/statistical multiplexed services group, and it is sufficiently large to cover the difference"

Wouldn't the phone company make more money by encouraging VoIP use? It is also easier to collect from a single service provider than a bunch of customers.

"As long as you youngsters keep forgetting that applications that touch remote devices and software use a backbone (OSI layer 1& 2), us old timers will always have a job."

Best of luck with this.
HeavyDuty
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HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:29 AM
re: VOIP Peering: Incumbent Killer?
"If this is true why doesn't the local phone company just give all their customers a Vonage phone?"

They're trying to outlast, not encourage, VoIP use.
HeavyDuty
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HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:29 AM
re: VOIP Peering: Incumbent Killer?
What I'm saying is that the revenue stream may be redirected, but overall the LEC lose is minimal, and in some cases (for instance, when the VoIP provider is the LEC) it's possible that there won't be any lose in revenue.

The LEC isn't taking the big hit in the pocketbook that folks are assuming they do. VoIP service providers are competing with other VoIP service providers (and all the VoIP providers are likely getting end-to-end connectivity via the LEC/IXC backbone), so that they aren't making much, if any, money. A major difference between the non-LEC VoIP providers and the LECs is the depths of their pockets.

When the majority of the VoIP service providers have gone the way of most of the CLECs, belly up, there will still be the same old LECs.

Much as it may not seem that way, I really hope that VoIP can pressure the LECs enough to change their business practices. But I was a witness to the CLECs' self-inflicted debacle, and see no reason to belive that VoIP will be different.
HeavyDuty
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HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:29 AM
re: VOIP Peering: Incumbent Killer?
"There are actually more HFC endpoints providing high-speed IP to subscriber homes from CableTV MSOs, than all PSTN leased line & DSL services combined."

I'd be real interested in where you found your statistical data.
spelurker
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spelurker,
User Rank: Light Beer
12/5/2012 | 3:10:30 AM
re: VOIP Peering: Incumbent Killer?
> Hybrid Fiber Coax is used by the LECs and IXCs to carve a DS-3 out of optical bandwidth for leased line services.

While this may be true, it is irrelevant to the context of the conversation. What you appear to be unaware of is that HFC is also the medium used by the CableTV operators to provide video and high speed data to nearly all of their customer base.
There are actually more HFC endpoints providing high-speed IP to subscriber homes from CableTV MSOs, than all PSTN leased line & DSL services combined.
stephencooke
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stephencooke,
User Rank: Light Beer
12/5/2012 | 3:10:30 AM
re: VOIP Peering: Incumbent Killer?
"The local phone company may not get a check from the consumer to it's voice group when a customer choses VoIP, but it gets a check from the VoIP service provider to the leased line/statistical multiplexed services group, and it is sufficiently large to cover the difference;
"


If this is true why doesn't the local phone company just give all their customers a Vonage phone?
stephencooke
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stephencooke,
User Rank: Light Beer
12/5/2012 | 3:10:30 AM
re: VOIP Peering: Incumbent Killer?
"The local phone company may not get a check from the consumer to it's voice group when a customer choses VoIP, but it gets a check from the VoIP service provider to the leased line/statistical multiplexed services group, and it is sufficiently large to cover the difference; all the LEC's products are really high margin."

I'm obviously missing something here... The local phone company sells me phone service & broadband for say $80 ($50 for phone service, $30 for broadband). I go VoIP using Skype (which is free between other Skype users, the servers are in Estonia, etc.) and pay the phone company $30 for the DSL connection. You seem to be trying to tell me that the $50 is still coming to the phone company from Skype...? or that the margin in the broadband service is sufficient to make up for the lost margin on the $50 phone service...? or that the leased line charges of the ISP (the broadband portion of the local phone company) go up by the lost margin on the $50...? or that, because there is a slight increase in the number of bits over a leased line that the cost to whomever owns that line increases by at least the margin on the $50...?

"and it is sufficiently large to cover the difference"

It seems like you are saying that the "leased line/statistical multiplexed services group"-side of the RBOC house can become the single source of income for the RBOC and all will be well; with revenues even better than they are now...

Please clarify. Thanks.
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