November 2001

BY ROOPAM JAIN

Despite its less-than-stellar performance in the past, video conferencing technology continues to develop new features and capabilities to lure a bigger end user base. The dismal economic climate that pervades the telecom marketplace has not slowed down the pace of many vendors and service providers who continue to introduce more technologically elegant and comprehensive video conferencing solutions. The last several months, in particular, have seen a spate of IP video conferencing  service announcements from companies  such as CoreExpress, Internap, Inview, Sprint, VSPAN, and Wire One.

Though video conferencing has been in existence for several years, it can still be termed a nascent market. This area has long been tipped for explosive growth — but it is only with the widespread uptake of IP that video conferencing is likely to come into its own. While equipment vendors showed a clear commitment by offering IP-based video conferencing systems last year, it is only now that several service providers are offering services that can support a small but budding installed base of IP users. 

The circuit-switched world has often been held liable for the less than adequate performance of video conferencing in the past. Moving video out of its circuit switched roots to packet-based networks allows for the development and integration of applications into existing infrastructures in a way that offers cost efficiencies as well as greater flexibility. The current base of IP video conferencing providers offer savings of up to 50 percent over ISDN prices. In hopes of achieving lower network costs, greater flexibility, and better performance, customers are increasingly showing a keen interest in evaluating IP-based video conferencing services. To cater to the customers’ hunger for a network more reliable than ISDN, service providers have started incorporating IP into their portfolios.

Legacy services continue to be predominantly used by an installed base of interactive video users. Over 85 percent of all video conferencing today is running on circuit-switched networks. Though IP overcomes several inefficiencies of the ISDN world, it is plagued by concerns regarding quality and a general hesitation to adopt a complex new technology that presents “learning curve issues.” Another factor inhibiting the shift to IP is that some carriers are afraid of cannibalizing their revenues from a huge existing legacy network that has not yet been amortized. 

Despite the increased attention in IP-based video conferencing, expect to see network coexistence rather than IP hegemony over the next several years. ISDN prices are also expected to decline as IP picks up speed, prompting some end users to stay with existing networks. Though IP represents a natural move for the industry, vendors and service providers alike need to plan for success and survival in an environment of heterogeneous network options.

HIGH STAKES
As service providers struggle to survive in the chaos that has come to represent the overall U.S. telecommunications marketplace, they will increasingly move in the direction of offering premium services like video conferencing to combat declining margins from traditional voice business. 

The video conferencing services market is dominated by the three Tier 1 national long-distance carriers: AT&T, Sprint, and WorldCom. The primary reasons for their dominance include their advantage of owning and operating their own circuit-switched networks and greater national brand awareness. The move to IP networks is currently being led by smaller service bureaus and ISPs. Both AT&T and WorldCom have yet to announce IP video conferencing services. Sprint, which is a recent entrant to IP video conferencing, like other new providers, has to climb up the learning curve and refine its business model before it can offer service assurance to its customers. 

The stakes are particularly high for the Tier 1 providers from whom end users expect greater performance guarantees Any failure on part of the IP service providers will result in customers who will not be willing to give video conferencing another chance anytime soon, as video conferencing does not represent a mission-critical business application for most end users. The IP service provider must balance the equation of delivering an effective business collaboration tool at reduced costs.

SETTING PARAMETERS 
IP-based video conferencing is a developing technology that has not reached the “QoS guarantee” phase yet. Instead, Quality of Service for the video conferencing services market remains a loosely defined and liberally used term. The absence of SLA parameters may hinder long-term growth. There does not currently exist an end-to-end solution that can assure predictable and consistent performance. Typically, customers are reluctant to pay for inconsistent and unreliable service. 

As service providers struggle with garnering a larger customer base, the most basic SLA parameters need to be set so that end users can be assured of the level of implementation that they can expect. These may include network availability, length of delays in network delivery, speed of installation, service repair, and restoration.

Video conferencing so far has collected an end user base of niche users primarily belonging to Fortune 1000 companies and vertical markets such as distance education, government, and healthcare. While the cost of services will be a primary factor in deciding the fate of this industry in the mainstream market, the current end user base places high emphasis on reliability and quality. The secret to success is not simply offering lower prices than competition, but providing superior service to retain customers. The strategy of several IP service providers is to first sign existing ISDN video conferencing users and then attract a bigger customer base from non-video conferencing users.

DIFFERENT FLAVORS OF IP
In their search for optimal quality at affordable cost, service providers are exploring different approaches for offering IP-based videoconferencing services. Wire One has created a private dedicated IP network, called Glowpoint, built exclusively to carry video traffic. CoreExpress has developed CoreExpress Extranet that utilizes existing Internet connections to intelligently route video traffic by using its software and hardware monitoring and reporting tools. Internap, a recent entrant, has taken a whole different approach by using the redundancy built into the current public Internet infrastructure. Internap’s architecture monitors the traffic on several backbone providers to select the path which is the fastest and reliable. In the future, service providers who own and operate their own IP networks will have an advantage as network ownership certainly means higher margins, as well as more control over provisioning, service quality, and management, functions crucial to IP services. 

More important than having the latest technology is acquiring customers by delivering the service they expect. The bottom line in this market is that end users do not care what type of network the call goes on or whose backbone the service provider uses. They simply want reliable video communications at affordable prices.

The move to packet-switched networking certainly promises the ability to run video conferencing traffic in more ways than one. Service providers face the daunting challenge of integrating into their solution the complexity of the video conferencing endpoint equipment. Several providers are still resolving the issues related to making the endpoint equipment work seamlessly with their IP networks. Service providers with a background in the video conferencing industry will be better aware of the issues that relate to integration and compatibility with video conferencing equipment provided by systems vendors.

THE NEXT STEP
Recent lessons learned in the long-distance market have shown that undifferentiated services sold solely on the basis of price competition cannot provide a viable basis for long-term business success. Service providers in all areas are trying to move from simply selling bandwidth to providing value-added services that are more customer-centric. Once video conferencing technology issues are ironed out, next-generation services will involve a shift from a technology focus to a marketing and customer service focus. 

As video conferencing gains more steam in the future, we can expect to see more crowding in the service provider area for IP-based video conferencing services. To combat greater competitive pressure, service providers will work to deliver higher value services. SLAs will emerge in the market to assure greater accountability and reliability. In the long run, providers will gain a competitive edge by offering “intelligent” IP services that improve the QoE (Quality of Experience) of video conferencing. Video conferencing service providers that deliver a user-friendly experience and reduce complexity through reservationless video conferencing, intuitive user interfaces that offer directory and scheduling capabilities and better conference and network management, advanced billing functions, and last but not the least security features, will earn a competitive advantage. Some of these pieces are already being offered by systems vendors and service providers under different umbrellas. Consolidation of all advanced features into one customer interface, with all the complexity hidden to the customer, is going to be crucial to enhance ease-of-use. The more self-management features a video conferencing interface can integrate, the better the experience will be for the end users, and the lower the costs of implementation.

STAYING POWER
Those who believe in the power of visual communications have zealous faith in the opportunities that abound in the video conferencing market. However, only the strong will survive in this industry as it weathers several storms before it can sail smoothly. Service providers who remain attentive to the core needs of their customers, namely reliability and affordability, will emerge as winners. 

A more detailed discussion of the issues raised here, including a comparison of features and prices for several IP video conferencing service providers, is available in Frost & Sullivan market analyses at www.frost.com. 

Roopam Jain is a strategic analyst for Conferencing Technologies at Frost & Sullivan, an international market consulting and training firm. A more detailed discussion of the issues raised here including a comparison of features and prices for several IP video conferencing service providers is available in Frost & Sullivan market analyses. 

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