Carriers Win Big with Triple-Play IP Services

By Michael Khalilian, above, and Farshid Mohammadi

The U.S. communications market

has changed rapidly in the past few years; DSL and cable broadband connections are becoming ubiquitous, new types of cable and DSL services are proliferating and incumbent carriers are losing market share to carriers that offer VoIP service. To remain competitive in this environment, service providers need to consider the advantages of offering the triple play of IP voice, data and video services to attract and retain customers.

Cable carriers such as Cox Communications Inc. and Comcast Corp. already are deploying triple-play services. Cable telephony subscribers and revenue are increasing. For example, The Wall Street Journal reports Cablevision’s Optimum Voice service is gaining 2,500 customers a week. Research firm In- Stat/MDR estimates at the end of 2003 there were 10 million cable telephony subscribers worldwide, generating revenue of about $3.9 billion. The number of subscribers is forecast to grow to 19 million by 2007, with revenue reaching about $6 billion.

Carriers and service providers also are offering voice services over IP networks. AT&T Corp. recently announced it would expand VoIP service to 100 new markets by the end of this year. AT&T also offers VoIP to business customers. Verizon Communications Inc. plans to launch a VoIP service in the second quarter, while Qwest Communications International Inc. will offer VoIP in 14 states this year.

Vonage Holdings, which The Wall Street Journal says has signed 125,000 VoIP customers in two years, is one of many greenfield service providers with a business strategy based on offering all-IP services.

These and other providers are combining the lower cost of the IP infrastructure, the speed with which the IP infrastructure can be installed and services offered and the ability to converge multiple services on the IP infrastructure to deliver services via the existing last mile. They are succeeding; incumbent carriers could lose 7 percent of their residential voice lines to Internet phone service by 2006, according to a study by Goldman Sachs.

However, VoIP alone may not be enough to sustain long-term growth as voice services become a commodity. Number portability gives users more freedom to move to new technologies - an example of public policy that crosses the boundaries of applications and technologies. Portability, in turn, leads to customer churn and continued decline in subscribers and revenue.

In the United States, carriers and vendors alike have been trying to find applications that would justify the migration from their current infrastructure to an IP infrastructure. It is clear a single application cannot justify migration. To generate an adequate return on investment, service providers will have to fund migration based on multiple IP applications. It is also clear that for carriers to remain successful and increase the value of their stock, they will need to drive IP applications across their existing infrastructures.

A bundled consumer services offering that includes television over IP (TVoIP) has emerged as the leading application that tips the balance in favor of migration to IP. Carriers can start by offering one service and then increase their revenue stream by adding other services incrementally. A first step might be to offer IP data at $30 a month, then add voice for another $20, and finally TVoIP for $40.

People tend to look at applications and technologies along different axes; wireline voice and wireless voice traditionally are viewed as two completely different services, for example, and customers may have a different provider for each service. With the advent of integrated next-generation IP softswitch architectures incorporating both media gateways and OSSs, however, the distinction between applications and technology blurs. Some softswitches give carriers a common core for offering all services across a variety of technologies.

By seamlessly bridging the gap between existing circuit-switched platforms and next-generation packet-switched network architecture, this type of softswitch allows providers to implement a networkmigration strategy that protects their current infrastructure investment. Because these softswitches have open interfaces, carriers can converge all services in one infrastructure and provide them without worrying about the delivery technology, whether it is wireline, broadband or Wi-Fi. In addition, these softswitches are highly scalable so that network operators can build their networks incrementally to support more than 1 million concurrent traffic channels. The Web-based OSS combines all support functions in a centralized location.

IP softswitches enable a shift in how carriers can think about their fundamental business in that they open all types of endpoints as potential targets for services. Carriers thus benefit from working with vendors that can provide an integrated core infrastructure that supports triple-play services. Buying from singlepoint suppliers requires developing a separate infrastructure for every new service.

Offering triple-play IP services across a common core will provide a number of benefits. Infrastructure costs are spread across multiple revenue-producing services that can be delivered to customers over existing copper pairs or cable in the last mile. The IP network infrastructure is simplified and carriers easily can turn on new services and scale bandwidth to meet subscribers’ needs. Revenue per user can potentially triple, as new services generate new revenue streams. Margins improve because all services are offered over a single infrastructure.

In today’s highly competitive market, triple-play services also offer the “stickiness” that carriers and providers want. Service bundling is key to customer retention; the more services customers buy, the longer they stay with their provider and the more difficult it is for competitors to displace the provider.

Triple-play services level the playing field for service providers and afford the consumer additional choices in content and its availability. A provider with an IP core infrastructure could let customers go to the Web to access content providers directly and watch what they want, when they want. TVoIP also enables higher levels of interaction and more active uses of video than the existing cable technology does. Carriers can leverage a next-generation softswitch to deliver streaming video on demand or any other IP service to customers over the existing copper plant.

An IP core network also removes the traditional geographical boundaries associated with the existing TDM technology and allows carriers to provide services in areas they previously could not reach. There are about 20 million broadband subscribers in the United States, but only about 200,000 are VoIP customers, so there is room for tremendous growth. Carriers that can offer VoIP and other IP services will be able to exploit this potentially explosive market. Carriers and service providers that offer triple-play services have a competitive advantage over single-play providers.

The experience of service providers in other parts of the world, particularly Asia, demonstrates how successful a triple-play strategy can be. Yahoo! BB, a Japanese CLEC, was formed in 2001 to address Japan’s under-served DSL market. The company realized that by erecting a nationwide IP backbone that used existing, underutilized dark fiber it could reduce its transport operating expenses and that bringing multiple IP services, over ordinary telephone lines, all the way to the customer would further reduce capital and operating expenses. This all- IP network allowed Yahoo! BB to be the first to market with important new applications, including 12Mbps broadband data service for a basic monthly fee of only $30 a month, VoIP phone services for only $3 more a month, and Yahoo! TV for an initial charge of $82 and a monthly fee of $20. Competitors were shocked when they began to understand the Yahoo! BB portfolio was changing the traditional broadband business model. Customers reacted with enthusiasm as they realized that they had access to a broad range of services at dramatic cost savings.

Yahoo! BB became the market leader in broadband access in just 18 months, and today has about 3.4 million subscribers for its services. The company’s all-IP backbone has proven remarkably cost-effective, costing 10 times less than a typical ATM backbone but offering 10 times the speed. As a result, Yahoo! BB achieved an operating profit in less than 18 months.

Carriers and service providers need to establish a multiphase migration path to build their own successful triple-play networks that will provide their customers with one-stop shopping for multiple services. A data carrier may add VoIP and then video, while a cable company that has not yet begun to offer highspeed Internet services may add data first and VoIP later. Voice carriers may add IP data and then video. The exact migration path will be a function of the existing network, so strategies will vary.

No matter what the existing infrastructure or what the migration path, a multiservice, integrated softswitch will be at the core of the most efficient, cost-effective triple play networks.

Because a softswitch is access- and service- agnostic, working with any infrastructure, carriers do not have to invest in separate infrastructure for every service they offer and they can provide multiple applications to a wide variety of CPE. With a flexible IP core in place, and the ability to offer applications across multiple technologies, carriers and service providers can use VoIP, data and TVoIP as part of a winning business strategy.