STEM newsletter

First or last to next-generation voice?

30 October 2002

The new IP version 6 supports the implementation of guaranteed bandwidth and QoS levels, while the existing solutions for multi-protocol label switching (MPLS) offer the potential to make VoIP truly scaleable. In conjunction with the highly-optimised compression algorithms implemented in the latest audio codecs, there exists the real potential for an eight-fold reduction in the transmission requirements for voice traffic with no perceptible loss of quality.

However, incumbent operators and other tier-1 carriers, already preoccupied with cash conservation and nervous about revenue/margin erosion in the tightly regulated and highly competitive voice market, are justifiably cautious about full-scale migration of what remains their central product without the example and inspiration of a successful first mover. This, in spite of the incremental revenue potential from value-added, integrated data and voice services, and the risk that a competitor could increase market share by taking the lead on technology, products and pricing.

We have started work on a new reference model examining the economic case for the shift to VoIP in the public switched telephony network, focusing on the historically-diverse infrastructure of the incumbent operator as a gauge of the true complexity of this toughest-of-all techno-economic questions.

The hype should excite the consumer too

One of the major gaps in the message promoting VoIP is the benefit for the consumer. The techno-centric view focuses on the statistical advantages of the packet-based transport, and the profound wider cost savings of a single, rational IP platform rather than IP and PSTN in parallel. This is pretty compelling for the network manager, but unfortunately rather ‘so what?’ for the end-user, who is generally happy with the mature fixed telephony service, unless the reduced transport costs result in reduced tariffs.

The thing about fixed voice is that it has been around for a long time now. While still enjoying a gradual evolution of additional services, such as caller-line identification and voicemail, the basic service hasn’t changed much in the twenty years since digital exchanges were first introduced. Compare this to the rapid development of mobile telephony in this interval. Not only does mobile offer the immediate appeal and convenience of communication on the move, the extended feature-set of mobile handsets and networks has undoubtedly also contributed to the spectacular growth of mobile services.

In today’s tight financial conditions, any large-scale initiative must achieve real cost reductions and increase – or at least safeguard – existing revenues. So any strategy for adopting packet-based voice transmission should consider equipment and services provided to the mass-market consumer as an essential factor. Therefore our model will extend from the core trunk network, through the local exchange and local concentrator, right out to the ‘home gateway’ which may inspire the end-user to embrace next-generation voice services. Given the right vision, which may deliver secure business voice communication and click-to-dial features on the home PC, any concerns as whether VoIP will actually work will be swept aside by the irresistible advance of technology.

The economic case must engage with the network

The incumbent operator has an extensive historical investment in the local loop, with line cards at the local concentrator providing the primary interface between analogue voice and 64kbit/s circuits, linked to a national network of digital local exchanges and trunk voice switches. The PSTN network is substantially depreciated but its operational life may be prolonged for at least another decade. However, traditional circuit-based voice represents a vast overhead in transmission and switching capacity, with associated operating expenditure that will only increase as spares become scarce. Better to migrate to soft-configurable, low-maintenance VoIP routers, and to make perhaps half the existing transmission capacity available for the inexorable growth in data traffic

The challenge for a credible model of this infrastructure, and the corresponding next-generation scenario, is to capture the specifics of a network which will typically have evolved on an as-needed basis, with varied components from multiple vendors, rather than according to a consistent design. We aim to use template replication to produce a model separately categorised by type and location of loop concentrators, local exchanges and trunk switches, together with local links, dual-homed exchange links and trunk circuits.

The model will accurately reflect the transition from the legacy PSTN to the VoIP network, providing a detailed breakdown of the kinds of investment that will be required and the impact on existing capex and operating costs. In addition, it will define new services, such as click-to-dial, which could help raise ARPUs, or at least protect the fixed voice market as the traditional voice product declines in value.

Rather than a simple go/no-go comparison, the model will assess a number of different scenarios, analysing the impact of revenues from new services on the pace of transition which can be afforded. The growth of broadband in the local loop may emerge as the key enabler which drives the associated IP infrastructure deployment and which then prepares the ground for VoIP to be truly cost-effective when transmission capacity is freed up as the PSTN is phased out.

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