The Local Advantage: Are mid-tier cable operators best positioned to roll out VoIP services?
[This comes from a source outside ntop, but fits the ntop model ...]
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telecoms-mag.com
Broadband Access
Sam Shiffman
September 2004
Residential VoIP telephony is a rapidly emerging market with very low barriers to entry; in fact, you can put together a residential VoIP service with practically no infrastructure. New emerging players are popping up virtually overnight and mature companies are reinventing themselves as VoIP plays to try and grab a piece of the action. But ease of entry and providing good service don’t necessarily go hand in hand and newer players may find it especially tough to compete against local cable companies who are focusing on QoS and can provide a local presence to customers.
It’s apparent that VoIP is revolutionizing local telephony and that’s undoubtedly a good thing. Consumers are entering a new era where local service may become as competitive as long distance. Even ILECs are reacting to the threat of new competitors by attempting to co-opt VoIP into their own offerings and are willing to cannibalize a portion of their circuit-switched legacy lines if it means staving off the brunt of the new players.
Early adopters have adapted readily to early VoIP offerings as witnessed by Vonage’s success in breaking the 200,000 subscriber mark. But early adopters are by nature experimenters and generally willing to put up with a measure of quality and service problems in order to try out the truly new or just to be first on the block. The large majority of consumers won’t be anywhere near as forgiving. As Yankee Group analyst Danny Klein wrote in a critique earlier this year, “Although consumers crave a less-expensive telephony service, they still expect Bell-like service and installation.”
Much as we all like to bash the PSTN, consumers have come to expect the dial tone will always be there and voice quality will always be good. The Bell System, for all its many, many faults, was able to provide quality network control.
Thus far, VoIP providers have delivered innovative enhanced service offerings included in basic service bundles. Features like call-hunting, follow-me, e-mail voice mail access and virtual numbers are beginning to show the promise of enhanced network services to the everyday consumer. The fact that customers can self-activate such features and in most cases for little or no additional cost is a tremendous improvement over the traditional bureaucracy and price insensitivity of the PSTN system.
But we are also seeing bulletin boards light up with user complaints about erratic dial tone, call latency and customer service that in some cases makes even the old Bell companies look responsive.
The incumbents are already trying to fight back and cable companies are seeing an opportunity to truly compete in residential telephony, and these players will not adopt a fly-by-night approach to service and customer support. Says the Yankee Group’s Klein: “As operators launch VoIP services with QoS, it will quickly become the norm. Customers will demand their broadband telephony service be reliable and comparable to their PSTN phone service, especially as their all-you-can-eat bundles settle around the same price points.”
The most likely short-term scenario is that two tiers of service offerings will emerge. One will emulate the Vonage model of reliance on the public Internet. With few or no dedicated facilities, the cost of entry is low, but this model brings high variable costs associated with service expansion. By nature, it will be sales and marketing driven as it fights for subscribers to generate revenue to underwrite further expansion. Ultimately, with no QoS assurance, it will be marginalized as a second-line service offering.
Fig. 1: A VoIP network configuration suitable for residential or small business use.
The other model will be facilities- and network-based. Relying either on ownership of private networks or managed service contracts with private network operators, this model will be highly scalable and able to exert control over QoS. Operators who fit this model will be able to enter markets strategically by leveraging their existing network architecture (see Figure 1).
The two types of companies most suited, initially, to the second model are ILECs and cable companies. The ILECs, while showing signs of life, are moribund by their inherent “build, not buy” bias. While they own the best physical network assets, internal turf battles and 100 years of culture make it extremely hard to change overnight in order to compete with newer, more nimble competitors.
The big cable companies are also biased to the “build, not buy” philosophy and intent on retaining as much of each dollar of customer revenue as possible; ultimately, one or two may be successful, but the others will likely come to find that each month learning how to create a new type of network puts them that much further away from competing effectively.
Surprising to some, it is the mid-tier cable companies who are most well positioned to leverage the local infrastructure, local presence advantage. They do not have the resources or the reach to build facilities-based VoIP services, nor do they have the in-house expertise. But they do have the local loop and they do have name recognition with consumers.
They will be able to buy turnkey services and contract with managed services providers and quickly roll out new products to consumers at minimal cost. Because they are buying rather than building expertise, they won’t have to staff up with new competencies but will instead be able to shop around to find the best managed services at the best price. In all likelihood, they will be able to generate profit virtually overnight because their capex costs are minimal and much of the revenue will fall to the bottom line.
Fig. 2: SIP peering for network users provides multiple services on bi-directional trunks for more efficient network utilization, routing of multiple access numbers from multiple markets to a single point of interconnection and a low-cost alternative to toll-free access, from any to any IP network or TDM network.
The unique attribute of these cable systems is, of course, that they are operating what is essentially a private network on which they can control QoS. By marrying their private network to a managed services private network, they are able to maintain control over service quality, not only in terms of bandwidth allocation, but also in the ability to support consumers when something goes wrong. Plain vanilla hosted services are subject to the whims of the public Internet with packets dispersed to a multitude of routers in different locations, so tracking down the source of a problem is an immense problem in itself (see Figure 2).
That’s not to say that these cable systems are a homogenous market where a one-size-fits-all approach will win the day. Each cable company has different requirements and different network setups; some may take fiber all the way to customer premises, others are still reliant on older fiber coax cable. Pairing these individual private networks to a managed service requires a degree of customization to ensure the highest QoS in each.
The biggest liability for these types of companies is that their ability to guarantee QoS will by nature put those who follow the Vonage model at a disadvantage. With their ability to manage the local loop and hook into managed services IP networks, cable operations will ensure that their customers who use their bundled cable and VoIP offerings enjoy much better performance than their customers who use one of the Vonage-class services. That may lead some would-be competitors for VoIP subscribers to charge that cable operators are purposely disadvantaging competitors.
But the fact is that cable operators will not have to resort to any trickery to show consumers they have a better product. Because they are able to allocate bandwidth to those VoIP subscribers they sign up and because they are able to route calls over more efficient and reliable private managed services networks, the higher quality will be evident. Those who follow the Vonage model will be at a disadvantage, but it will be one of market economics. Their lack of infrastructure and their unwillingness to share the revenue opportunity and network responsibility with cable operators will leave them a victim of their own circumstances. |
