& cplSiteName &

VOIP Peering: Incumbent Killer?

Light Reading
News Analysis
Light Reading
6/16/2005
50%
50%

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

(39)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
<<   <   Page 2 / 4   >   >>
HeavyDuty
50%
50%
HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:34 AM
re: VOIP Peering: Incumbent Killer?
"Hmm, that is nice and technical. But you still haven't explained where the $50 in revenue goes when we drop the local RBOC as the voice provider and substitue with packet VOIP."

Yes, I did.

"Or where the IXC revenue goes when the traffic gets transported as VOIP via softswitching."

Also, in the post you're responding to...

"Are you saying the incumbent voice business is just dandy?"

No. What I did say is that when they lose the voice business to a VoIP provider they recover that income by providing leased lines (a subset of the PSTN) to said VoIP provider. In some cases, since the RBOCs and IXCs have kept prices for leased line and functionally leased line services (e.g., MPLS, ATM & Frame Relay, etc...) artificially high, they can make as much or more money without providing the 'voice' application.
HeavyDuty
50%
50%
HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:33 AM
re: VOIP Peering: Incumbent Killer?
"Yes, they (RBOCs and IXCs)have access networks, but it's at a time when access methods are proliferating. At one time, the only line of communication into a house was copper. Now you have HFC, and mobile networks, and soon, WiMax."

HFC is a layer 1 provisioning method of the PSTN.

Neither mobile networks or WiMax are end-to-end services. At some point, usually very close to the user, a base station hands the signal off to a functional/leased line (part of the PSTN; see previous post) for delivery to a remote end-point.
stephencooke
50%
50%
stephencooke,
User Rank: Light Beer
12/5/2012 | 3:10:33 AM
re: VOIP Peering: Incumbent Killer?
Hi,

I think that the confusion here is that the RBOCs own an access network that may or may not be used for phone calls. For example, Scott's $50 for phone service and $30 for broadband access for a total of $80 to, say the RBOC (assuming DSL connectivity). If the consumer goes for VoIP exclusively the RBOC loses the $50 in telephone service revenue. If the consumer goes for cable broadband and VoIP telephony the RBOC loses possibly $80 in revenue.

Does that mean that the RBOC dies? Possibly. What we are talking about here is the single largest part of the incumbent's food chain. Connection charges are a significant source of revenue but cannot make up for the higher margin service revenue. Saying that RBOCs still get revenue from layers 1 & 2 is correct but the question is the relative amount of revenue and can they survive without the higher margin stuff? Can they increase connection charges to cover these shortfalls? Possibly but increases of that magnitude would open the doors for competitors (there is a lot of non-RBOC dark fiber out there).

Here is the big question: Given that BT has come out with Fusion (ie: fixed - mobile convergence over an IP core, I'm assuming the WiFi-based handsets), what is stopping other mobile service providers teaming up with cable companies to offer the same service, thereby wiping out the need for home phone lines altogether? This technology essentially provides the path to the RBOCs, or any incumbent, becoming nothing more than backbone providers. Their business models are not cut out for this.

In the US this is not as big a problem as the incumbents also own most of the mobile carriers but this is not true everywhere.

I guess the main point here is that VoIP technology is hitting the carrier's revenue stream in much the same way that the CLECs did. The CLECs caused significant price erosion in the business and long distance arena. The VoIP case is for a complete loss of customers to other types of network providers or the incumbent's own relatively cheap 'unlimited' broadband offerings.

I think what is lost on most people is that any broadband internet connection has become a potential loss of telephone service revenue to carriers.

Steve.
spelurker
50%
50%
spelurker,
User Rank: Light Beer
12/5/2012 | 3:10:32 AM
re: VOIP Peering: Incumbent Killer?
> HFC is a layer 1 provisioning method of the PSTN.

Not really. The PSTN owns no part of most HFC in North America. (Most HFC is DOCSIS, not TDM, including virtually all IP/HFC) VoIP calls started from an HFC node are only about 50% likely to travel over any RBOC fiber whatsoever. (of course, with RBOCs buying IXCs, maybe this changes)

I think predicting the doom of RBOCs is a little premature, but every "premium service" which migrates away will hurt them.

To play 'devils advocate'... the premium services (voice) are what translate into per-customer revenue and brand loyalty. If people move to VoIP, this brand loyalty disappears, and users migrate to other last mile providers. This turns the RBOCs into IXCs. BellSouth doesn't have much fiber, maybe they don't survive it, but Q, SBC, VZ have/will have full-blown IXC businesses already. VoIP peering eats into the peering point revenue (e.g. MAE East), but someone has to provide IXC service to the VoIP peering point. So "dumb pipe" services grow slightly, proportional to a loss in long distance service, but local POTS (the "cash cow", I believe) disappears entirely.

It sounds to me like VoIP peering is a non-event, as compared to a possible popular move to VoIP.
Scott Raynovich
50%
50%
Scott Raynovich,
User Rank: Light Sabre
12/5/2012 | 3:10:32 AM
re: VOIP Peering: Incumbent Killer?
"Neither mobilenetworks or WiMax are end-to-end services. At some point, usually very close to the user, a base station hands the signal off to a functional/leased line (part of the PSTN; see previous post) for delivery to a remote end-point."

Understood. But which is a better business -- end-user applications or transport? It seems to me that the wireless providers have done better than anybody.
Scott Raynovich
50%
50%
Scott Raynovich,
User Rank: Light Sabre
12/5/2012 | 3:10:32 AM
re: VOIP Peering: Incumbent Killer?
Heavy,

Thanks you, that is a better explanation. However, I am still skeptical about several points.

"In some cases, since the RBOCs and IXCs have kept prices for leased line and functionally leased line services (e.g., MPLS, ATM & Frame Relay, etc...) artificially high, they can make as much or more money without providing the 'voice' application."

Really? Where is this revenue growth then? It was my understanding that leased-line pricing is competitive and will become more so as they are replaced with Ethernet.

stephencooke
50%
50%
stephencooke,
User Rank: Light Beer
12/5/2012 | 3:10:32 AM
re: VOIP Peering: Incumbent Killer?
Further to my previous post in this thread...

A while back I saw a few articles floating around concerning 'naked' DSL services (ie: DSL service without accompanying phone service). With BT's Fusion release I would have to wonder if there would be significant demand for this type of service. I guess the more important questions would be: what the relative price would be for this service compared to the current offering? and What would be the impact to BT of not getting the monthly line rental and calling features revenue?

Steve.
HeavyDuty
50%
50%
HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:31 AM
re: VOIP Peering: Incumbent Killer?
"The PSTN owns no part of most HFC in North America. (Most HFC is DOCSIS, not TDM, including virtually all IP/HFC)"

Hybrid Fiber Coax is used by the LECs and IXCs to carve a DS-3 out of optical bandwidth for leased line services.
HeavyDuty
50%
50%
HeavyDuty,
User Rank: Light Beer
12/5/2012 | 3:10:31 AM
re: VOIP Peering: Incumbent Killer?
"I think what is lost on most people is that any broadband internet connection has become a potential loss of telephone service revenue to carriers."

What is lost on most people is that the Internet is run on leased lines that are a subset of the PSTN. If you get DSL (even if you don't get it from the LEC), the service is almost always provided via the LEC's copper pairs. A VoIP service provider backbone is leased lines or leased line-like services from the LECs and the IXCs. The wireless base-station's backbone is also leased/pseudo-leased line services from (if you guessed...) the LECs and IXCs.

Recognizing a pattern?

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. If the SBC/AT&T and Verizon/MCI mergers go through LECs will be IXCs and IXCs will be LECs almost like before 1984's divestiture of the original Ma Bell. This will cause the size of the check from the VoIP service provider to become increasingly large.

There's a lot of dark fiber out there and most of it has been purchased from bankrupt installers by the ILECs and IXCs, so it often isn't an alternative.

Facilities based CLECs continue to be a slight drain on the LECs income, but they are discovering (the hard way) how expensive end-to-end connectivity is; helps to have had a century's head start as a regulated monopoly. CLECs without physical plant come then go and, for a short time, cause the aforementioned redirection of payments to the LECs/IXCs.

"Does that mean that the RBOC dies?"

RBOCs have merged and practiced anti-competitive behavior in becoming behemoths that will take more than little VoIP revenue redirection to kill.
spelurker
50%
50%
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.
<<   <   Page 2 / 4   >   >>
Featured Video
Flash Poll
Upcoming Live Events
September 17-19, 2019, Dallas, Texas
October 1, 2019, New Orleans, Louisiana
October 2-22, 2019, Los Angeles, CA
October 10, 2019, New York, New York
November 5, 2019, London, England
November 7, 2019, London, UK
December 3-5, 2019, Vienna, Austria
December 3, 2019, New York, New York
All Upcoming Live Events
Partner Perspectives - content from our sponsors
Transform Beyond Borders to Lead the Innovation
By Ben Zhou, CEO, Whale Cloud
Reject Limits. Build the Future.
By David Wang, Huawei
China Telecom & Huawei Jointly Complete the World's First End-to-End 5G SA Voice & Video Call
By Jay Liu, Senior Marketing Manager, Cloud Core Product Line, Huawei Technologies
All Partner Perspectives