December 2001
 

BY AYMAN GHALI AND DANIEL GEIGER

With voice and data network convergence, service providers are demanding single platforms that support multiple services in order to generate new sources of revenue, reduce capital and operating costs, protect their existing network investment, and satisfy customers who demand multiple, differentiated services. There are two main drivers of this shift to the next-generation network. First, while voice remains the main revenue generator, margins are under constant downward pressure. Second, while data traffic is growing exponentially, it is finding its way onto the PSTN, which was not designed to efficiently handle this type of traffic.

The lucrative market of voice services has become a low-margin commodity due to the intensive competitive pressures from established and emerging carriers. Carriers and service providers today rely on voice as their main revenue source (switched voice traffic accounts for more than 80 percent of revenues). And industry analysts agree that this is a market estimated to be between $600 billion and $1 trillion. But service providers are facing some challenges, including:

• Voice networks increasingly threatened by degradation and congestion from data traffic.
• Skyrocketing, low-margin data demand without a corresponding growth in revenue contribution.
• Low growth in the cash-generating business of voice services.
• Demand for value-added services.
• Unmanageable costs and inefficiencies from voice/data network overlays.

Data networking technologies can relieve these market pressures. Using packetized voice as an example, compression, scalability, and reliability are all in place to ensure that packetized voice attains the same performance levels as the traditional circuit-switched variety -- with a significantly reduced cost structure.

A universal gateway approach with universal port technology enables data-oriented service providers to support traditional dial-up and ISDN services and new voice over IP (VoIP), fax over IP (FoIP), and virtual private network (VPN) services as demand dictates.

MIGRATION TO THE NEXT-GEN NETWORK
According to a February 2001 report by International Data Corp. (IDC), full integration of voice and data services will give network service providers the ability to deliver differentiated services more quickly and cost effectively. The ability to establish a single network for voice and data reduces costs, and the services integration permits a faster time-to-market for the service provider.

Next-generation networks are more profitable than traditional PSTN networks. Next-generation networks provide higher revenue generating potential because they support both traditional and new, higher margin services while offering rapid deployment of traditional and new value-added services. In addition, data networks operate at a fraction of the cost of circuit-switched networks -- providing capital and operational cost advantages and the scalability to more efficiently handle network growth.

The next-generation network allows data and voice traffic to bypass the toll tandem switches from the PSTN and transports both traffic types over the IP network using softswitches. The Internet boom introduced an unprecedented quantity of data traffic onto the PSTN. The combination of tens of millions of new dial-up and corporate customers accessing the Internet demonstrated the limitations of the circuit-switched PSTN:

1. The PSTN does not scale well. Dial-up Internet traffic has threatened to overwhelm the PSTN. Whereas the circuit-switched network was built for three-minute-long voice calls, the average dial-up Internet call lasts for an hour or more. In some areas, there was no voice call dial tone because data traffic consumed all available circuit-switched resources.
2. The PSTN is too expensive to extend for data. Compared to voice traffic, data traffic is a poor revenue opportunity. For equal amounts of traffic, voice service providers realize a much higher premium than do data service providers. So, although the PSTN can be expanded to support the growing volume of data traffic, the lower return on data traffic has forced service providers to look to less expensive alternatives for supporting data services.
3. The PSTN is an inefficient system for carrying data traffic. The PSTN was designed and built to guarantee voice quality and reliability. Toward this end, the PSTN dedicates maximum bandwidth for every call initiated. Whether a phone call is an information rich, rapid-fire conversation, or pure silence, the same amount of bandwidth is reserved for each and every call. In contrast, data networks do not dedicate bandwidth for each session. Data networks intermingle traffic from disparate data sessions, aggregate traffic, more effectively use bandwidth, and prioritize sessions to insure appropriate service levels.

SERVICE PROVIDERS' ACTIONS
Service providers are taking several steps to overcome the limitations of the PSTN. First, they have designed strategies to protect their voice networks and support the data traffic. Second, service providers are beginning to rely on data technologies to augment voice network functionality. And finally, service providers are beginning to provide voice based solely on data networking technologies. So, service providers have come full circle -- from using data networking technologies defensively, to evolving their voice capabilities with innovative data technologies (in some leading-edge cases), trying to avoid the PSTN altogether by using data networking technologies to support converged voice, data, and emerging services on their primary network.

A universal gateway approach enables service providers to deliver on each step in the evolution of voice and data networking. When dial-up Internet traffic began to flood the PSTN several years ago, service providers quickly adopted "Internet call diversion." Internet call diversion, or "ICD," removes dial-up data traffic from the PSTN, transferring it on to a data network. ICD involves both sophisticated modem management and SS7 call control. In addition, these service providers have created profitable managed modem businesses based on the ICD model.

As service providers created robust data infrastructures and data expertise, they became more comfortable with data's capability to transport voice. Some carriers have begun to augment their voice networks with data technology, while others are expanding their data networks to offer voice services.

UNIVERSAL PORT: STRATEGIC OPPORTUNITIES
A universal port is an enabling technology that permits edge access gateways to speak the language of both the PSTN and PSDN. The universal port functionality enables gateways to sense the type of incoming call -- dial-up (analog, modem, or ISDN), VoIP, FoIP, or VPN -- dynamically accommodating it on any available port, processing it for transport over a packet-based core network (circuit in ­ packet out). It is a technology strategy of "any port, any service, any time." Universal ports enable multiple service offerings to be supported on a single chassis, and on any available DSP port processing resource.

Universal gateways provide true dynamic port allocation that greatly increases the flexibility of the network. It allows each port on the network to be used for a variety of revenue-producing services thereby reducing carrier costs and increasing profitability. In a PSTN environment, the SS7 network manages all aspects of call control -- set up, tear down, routing, and more. The term "softswitch" refers to that device, placed between the PSTN and the PSDN, that manages the call control between these networks.

Coupled with the universal gateways, the softswitch assists with multiple services including ICD, VoIP, tandem switch replacement, and emerging services. A universal gateway/softswitch solution enables:

• Dramatic reduction in complexity for multi-protocol environments.
• Decreased operating costs.
• Reusable PSTN databases for packet networking.
• Creation of new and unique revenue generating services.
• Reduced time to market.
• Multiple sources for application development and deployment.
• Preservation of circuit-based IN services.
• A migration path from a data-centric to a multiservice network.

THE FUTURE OF SERVICES
Data network technology has two essential benefits: cost advantages and open, standards-based service creation capabilities. The new converged architecture paradigm breaks apart the proprietary telephony infrastructure, lowering costs and giving service providers direct control over the development and deployment of competitive revenue-generating services. Some of these services are briefly described in the subsections that follow.

Port Wholesaling And Internet Call Diversion (ICD)
Dial-up Internet access has become consolidated among large service providers. Whereas in the past, thousands of smaller ISPs provided dial-up modem termination to the Internet, currently the vast majority of modems are terminated by a select group of larger service providers who offer these ports ("port wholesale") to other service providers. These port wholesalers possess, deploy, and manage large quantities of dial-up Internet access ports, making these resources available (for a fee) to other, downstream service providers. The downstream service providers then can provide high-quality Internet access without incurring the expense of possessing, deploying, and managing dial-up access resources.

Port wholesaling (also referred to as "managed modem services") is a profitable and growing service provider business. IDC predicts that the port wholesale market will grow 23 percent year over year from 2000 to 2004, totaling over $13 billion by 2004. The port wholesaling market is a significant opportunity for dial-up service providers with existing infrastructure.

For ILECs and incumbent carriers, the ICD application can significantly relieve congestion on PSTN switches. For CLECs and competitive carriers, the ICD application opens up the port wholesaling opportunity and enables converged voice/data products, delivering new revenue generation tools. Obviously, in terms of the PSTN, valuable voice circuits are left untouched and made available to actual voice traffic.

VoIP/IP Telephony
VoIP gives data service providers an opportunity to gain a foothold in the voice market. Conversely, VoIP enables existing voice service providers to begin delivering voice in a new, more cost-effective way. Analysts agree that VoIP offers service providers the greatest profit potential by delivering the means to sell both traditional and new services while leveraging a lower cost IP infrastructure.

The combined market for retail and wholesale IP telephony services revenues was estimated to be $1 billion in 2000, and it is projected to reach $10.9 billion by 2003 and $61.3 billion in 2005, representing a compound annual growth rate (CAGR) of 127 percent.

The IP telephony retail services market is defined as small business, consumer, and corporate IP-based phone-to-phone and PC-to-phone calling services purchased on a retail basis. The small business/consumer segment is forecasted to have the greatest revenue opportunity, representing $51.1 billion in revenues by 2005, with a 174 percent CAGR. Wholesale IP telephony services -- the sale of time on the IP telephony network to other service providers -- is expected to be a $3.3 billion market by 2005 with a 37 percent CAGR (source: IDC, December 2000).

VoIP enables traditional services, targeted at all segments of the retail and wholesale market, to be offered on an IP network. Today, VoIP is enabling international rate arbitrage, lower cost local and long-distance (1+, 1010 dial around, etc.). and pre- and post-paid calling cards.The VoIP market momentum is driven by:

• Existing voice market opportunity that is greater than $600 billion. This represents a major opportunity to migrate this revenue from the PSTN to a more cost-efficient PSDN.
• Consumer demand for low-cost international calling.
• Demand for integrated Internet-voice services.
• Business demand for voice cost savings and new high-value network services.
• Carrier cost and network efficiencies found by bypassing the PSTN.

Virtual Private Networks (VPN)
VPNs are providing companies with a cost-effective alternative to traditional leased lines, especially those companies that have a significant remote workforce. In addition to the cost advantage, VPNs enable the "road warrior," who dials in from a different location every day, to gain secure access to corporate data. VPNs can expand connectivity to a dispersed workforce by providing access to sensitive corporate data without requiring dedicated connections to the corporation.

Forrester projects that by 2002, 92 percent of Global 2500 companies will shift from building private WANs to using public VPNs, and that by 2003, over 50 percnet of business-related Internet access revenue will be VPN-related. IDC forecasts VPN equipment to be a $6.2 billion market in 2005 with a 55 percent CAGR. Benefits of the VPN service offer include:

• Reduced remote access support and PSTN usage.
• A more strategic relationship between the service provider and the customer -- a beachhead for other services.
• New markets for technically adept and widely deployed service providers.

CONCLUSION
Over the next few years, data traffic is expected to have a growth curve far steeper than voice. The volume of data traffic has now surpassed voice. This ever-increasing data traffic volume is running on the PSTN, a network designed for voice. Bursty data traffic over the PSTN also creates operational and cost inefficiencies on circuit-switched networks. This data "tsunami" is threatening to increase congestion and degrade the reliability of the PSTN.

The search for new, profitable revenue streams and cost efficiencies has shifted focus away from the PSTN to the next-generation IP data network. The traditional circuit-switched network model, which has been relied upon so heavily for new revenues, is becoming a less viable source of new services. The cost structure and technological limitations of the PSTN are key drivers of the next-generation network; this new converged network will far surpass the PSTN in terms of the ability to take advantage of new profitable revenue streams while reducing cost structure and time-to-market for new services. Service providers need to align with this change in order to maintain and grow their profits and level of service differentiation.

Ayman Ghali and Daniel Geiger are senior product marketing directors for Lucent Technologies' Integrated Network Solutions Edge Access Product Unit. For more information, visit www.lucent.com 

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