A provocative article on IP telephony.
IP Myth vs. Reality - Part 1
If you believe the trade press hype, every conceivable information transfer will be over
Internet Protocol (IP) by the year 2000 or shortly thereafter. This analysis is about the
hype and reality of this IP or Internet vision and the challenges ahead. This article is the
first of two on this subject. Check the Carriers tab on your Telecom Insider next week
for IP Myth vs. Reality - Part 2.
IP is cheaper than circuit-switching telephony.
Ever since vocalic announced its IP Telephony Gateway switch in 1996, the telecom
world has been abuzz over IP telephony and the enormous potential savings it offers
compared to old-fashioned switched telephony. First, there is the savings hype about
using the "public" Internet for telephony. Then there is the value-added reality of using a
closed user group intranet (i.e., using IP technology for switching or segmented
transmission) for IP telephony.
The only reasons entrepreneurs make money sending telephony traffic over the public
Internet are the savings gained either through avoided settlements and/or access
charges. U.S. international carriers that terminate calls in foreign countries pay settlement
fees upwards of $1 per minute. Internet Telephony Service Providers (ITSPs) slip
originating international calls over the Internet, and terminating Internet Service
Providers (ISPs) that complete these calls pay local rates at both ends at a substantially
lower cost (a few cents per minute) than international settlement rates. This makes the
economics work. Regarding domestic long distance, carriers pay more than 2 cents per
minute at each end (originating and terminating), and ITSPs pay business interconnection
rates, which are less than 1 cent per minute.
The FCC allows this settlement/access avoidance by the ITSPs for two reasons. First,
the regulators want to sock it to the foreign PTTs which refuse to adjust their
international settlement accounting rates to a more cost-based price and, second, they
want to avoid the political backlash from requiring consumers to pay measured rates for
Internet access. Besides, voice quality today over the Internet isn't very good due to
latency delay, the general inability to transmit touchtone (DTMF) signaling for interactive
voice response units after call completion, sound fidelity and more. Furthermore, the
FCC doesn't face political or universal service fund problems, except those caused by
RBOC and independent telco lobbying. About the only impact on conventional
switched-access revenues will be migration of fax traffic to the Internet. However, the
regulators could easily make a future policy adjustment--the FCC could require access
fees for using the Internet to fax from a non-PC fax terminal.
IP networks are more robust and reliable.
The Department of Defense funded the development of the IP protocol called TCP/IP
because it wanted to replace the ARPANET network it funded for university research.
TCP/IP would allow for the networking of university research centers and create a
platform for highly robust and reliable military networks. The myth was perpetuated that
if DOD uses IP networks they must be more robust and reliable than circuit
switched-networks!
They are not! Here's why: The Internet is, in general, a collection of Ethernet LANs and
routers riding on the IP protocol platform, TCP/IP. They have the following
characteristics: When traffic becomes heavy on LANs, routers or PCs running on
TCP/IP, each acts to slow the networks down or close them. An Ethernet is a
connectionless packet network. When traffic increases on an Ethernet LAN the packets
from multiple terminals begin to collide with each other and have to be retransmitted;
therefore, less traffic gets through. When routers are congested, their buffers (packet
storage while in transit) fill and newly arriving packets cannot be handled, so they are
dropped. Then the routers send more control messages to each other, exacerbating the
congested conditions. Finally, TCP/IP sees the packets sent not being acknowledged as
received. In response, the originating terminal slows down its packet generation. The
way the military solves this problem, simplistically speaking, is by giving the general's
terminals higher priority and the private's terminals lower priority. This priority approach
would not be satisfactory in a common carrier network environment.
The reality is that today's circuit-switched and time division multiplexed-based (TDM)
private networks are orders of magnitude more reliable than the public Internet and, for
that matter, intranets. Case in point: how many financial institutions have abandoned their
TDM private line networks for IP backbones to date? The answer is NONE! This is
not to say private networks won't migrate to IP. They will, but not for several years.
IP telephony switch standards are now in place.
Almost entire issues of new IP start-up magazines are devoted to the recently
completed IP gateway switch standard, H.323. These magazines claim vendors, (that is
advertisers), can now move ahead and start building industrial strength,
multi-vendor-compatible IP telephony switches to replace the dinosaur age circuit
switches of today. This is a myth. On a scale of 1 to 10, the possibility of H.323 being
ready to define the switch of the 21st Century is a 0.1 at most.
H.323 started as an International Telecommunication Union (ITU) standard for video
over LANs. The video conferencing folks picked it up because a standard was needed
for interoperability of multi-vendor protocols for video conferencing coders,
synchronization of audio and video traffic streams, user authentication, authorization
(gatekeeper function) and more. In 1996, the IP telephony folks were in search of a
standard. Since it takes years to create a standard from scratch, they grasped at straws
and blessed the only remotely appropriate standard: H.323.
H.323 has so many shortcomings as an IP telephony switch standard for carrier
operation that a 0.1 rating may be too generous. For starters, it has a slow call set-up
time because its set-up protocols were designed for ISDN networks. Thus, many
packets are exchanged between IP switches before a call is set up resulting in
unacceptable post-deadline delays (10 to 20 seconds in some cases), compared to
today's circuit-switched networks.
Second, H.323 uses TMN standards for operations support systems (OSS).
Unfortunately, North American carriers in general don't use ITU's TMN for OSS-the
glaring exception being TMN for local number portability (LNP). Yes, TMN standards
will be pushed for LNP and FCC-required RBOC OSS unbundling. But dealing with
TMN just to introduce H.323 would create a cost barrier for carriers that wish to use
their legacy, non-TMN OSSs.
Why else is H.323 a turkey? The standard today doesn't account adequately for DTMF
or touchtone transmission after IP call set-up, and it is lacking the fundamental
requirements for interfacing with SS7 for AIN features including LNP.
IP over xDSL is ready for mass deployment.
The reality is that the variety (x) of digital subscriber line (DSL) approaches permitting
MBPS end-user access over existing copper loops technologically may be ready for
rollout, but the RBOCs may get cold feet about moving ahead. First, to make xDSL
access work from a service and business case perspective, an RBOC will need a
national IP backbone network to cache selected Web sites, such as @Home and
Roadrunner created for the cable industry and cable modem access. It doesn't make
sense for the RBOCs to massively deploy xDSL for high-speed access to ISPs, only to
shift the bottleneck from the loop to the ISP! The RBOCs will have to solve the
problem of local IP Web caching. So far, the regulators have not allowed the RBOCs
to deploy national or interLATA networks for such Extranet services until they unbundle
their OSSs for the CLECs.
Second, if the RBOCs push ahead with xDSL deployment for Internet access, they will
have to do it with unregulated subsidiaries, which lease unbundled loops from their
regulated parent companies. If this occurs, they will break the bottleneck they created
(i.e., restricting the CLECs from leasing unbundled loops).
Finally, if the RBOCs start offering unbundled loops for Internet access via (high bit)
HDSLs, they will cannibalize their T-1 access business. HDSL, with two unbundled
loops at about $15 per month per loop, doesn't replace the revenue from a T-1 at $350
to $1000 per month.
IP will generate 50 percent of wireless revenues by the year 2003.
At the CTIA national wireless show last March, nearly all cellular and PCS CEO
speakers stated that they will see 50 percent of wireless revenues coming from wireless
Internet access (or IP) within five years (see "Publisher's Letter", Billing World, April
1998). In reality, this is a wireless CEO's canned answer to "How are you going to
survive with five competitors in your market?" The reality is that yes, IP wireless
revenues will likely exceed voice, but not in five years! Here's why!
To entice consumers, not only will wireless carriers have to offer higher transmission
speeds of at least 64 KBPS to get acceptable Internet access, but they will have to
provide packet switching services as well. Yes, 64 KBPS will be available by year-end,
or at least by the 1999 CTIA show. But it will be sold and billed as circuit-switched
wireless. Will consumers pay six times the current per-minute rates-or 60 cents to $2
dollars per minute-for wireless Internet access? Some will, but probably not enough to
support a booming wireless data business. The wireless industry will have to introduce
packet switching and only charge for data packets transmitted or the airtime used in
order to make the economics work. The technology to introduce high-speed packet
services is years away.
Second, corporate Web sites will have to be modified for wireless access. Regardless
of wireless access rates, Web site display images designed for PC screens (8 in. x 11 in.
or so), and the high electric power required by PC chips to process these images, are
not compatible with palm-size, power-limited wireless data terminals.
Finally, there will have to be a consensus of what these data terminal requirements
should be before equipment vendors start gearing up. The bottom line is that
high-volume and low-cost wireless terminal production intended for mobile Internet
access is years away rather than months away.
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Excerpted from the Publisher's Letter: IP Myth vs. Reality, by Dr. Jerry Lucas, from
Billing World magazine's October 1998 issue. To learn more about billing, customer
care, and OSS, visit Billing World magazine on the Web by clicking on their logo at the
top of this article.
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