Posted: 02/2000

Leap of Faith
OLD CARRIERS PUT TRUST IN ATM SWITCHING
By Peter Lambert

If an incumbent telephone company could improve its trunking network occupancy rate
from 60 percent to 90 percent, would it jump from a reliable, hundred-year-old
infrastructure to gain that improvement?

If a competitive carrier could lower its market-entry costs by up to 90 percent, would
it take a leap of faith and deploy a relatively unproven, new class of switches made by
manufacturers with names unheard of among a savvy customer pool?

During the past several months, a few real-world service providers have begun to do
just this. In doing so, they hope to alter the economics of long distance and local
telephony. Some believe they also may make resale and arbitrage of the advanced broadband
and integrated access services a difficult proposition.

In the incumbent carrier world, the first preemptive strike against advanced services
resale may have come in the closing weeks of 1999 from RBOC SBC Communications Inc. (www.sbc.com).

SBC committed $6 billion to a radical overhaul of its infrastructure that will, during
the next several years, entail the scrapping of its entire circuit-switched, tandem
trunking network in favor of voice trunking over asynchronous transfer mode, or ATM,
switching (VToA).

At the same time, a relatively new backbone carrier Global NAPs Inc. (www.globalnaps.com), also committed to migrating all
its traffic to VToA. And in another case, next-generation CLEC 2nd Century Communica-tions
Corp. (www.2c2.com) began to build VToA backbone networks
and to bring ATM telephony to customer doorsteps in the local loop.

In Los Angeles, AirPower Communica-tions Inc. (www.airpower.net),
an emerging local multipoint distribution service (LMDS), broadband wireless carrier, also
is breaking with convention and experimenting with integrating all its services over new
Dynamic Transfer Mode (DTM) switches from Dynarc Inc. (www.dynarc.com).

SBC’s Project Pronto "represents the kind of fundamental change that only comes
every 60 years," says Sam Sigarto, executive director, ATM distribution network
systems, broadband switching, for SBC.

In three years, the project is designed to migrate all SBC backbone traffic to ATM and
to extend the reach of DSL broadband access to 80 percent of SBC’s customer base.

The two prongs of Project Pronto are not unrelated. For the asymmetric DSL (ADSL) data
services already deployed in SBC’s local loops, the transport technology is already ATM.
Although Sigarto says "the jury is still out" on whether DSL voice traffic also
will travel over ATM virtual circuits (VCs) in the local loop, voice and data certainly
will travel via ATM transport in SBC’s backbones.

Because ATM has statistical multiplexing capability–that is, the ability to have
multiple services dynamically share the same bandwidth–the new ATM backbone promises to
raise SBC’s trunking bandwidth utilization from about 60 percent to approximately 90
percent. That is one reason the carrier expects the new infrastructure will generate $1.5
billion in capital and operating expenses annually, Sigarto says.

"You can leverage statistical multiplexing to gain efficiency transporting bursty
data traffic as well, but voice alone looks like it could pay for the investment in ATM
trunking," he adds.

Capital and operational cost savings also weigh heavily for Global NAPs. Specializing
in providing bulk lines to Internet service providers, including Microsoft Corp.’s MSN (www.microsoft.com) and Mindspring Inc. (www.mindspring.com), Global NAPs expects to kill two
birds with one stone with a $50 million deal to buy 75 Integrated Convergence Switches
(ICSs) from Convergent Net-works Inc. (www.convergentnet.com).

First, the Convergent ICS can lower costs per DS-0 voice circuit from the $200-to-$300
range to $25. These savings are a boon for the company’s plans to expand its national
presence to 85 percent of U.S. markets in the next two years.

"So I’m effectively going to cover 10 times more new markets than I could with
more [Nortel Networks Corp.] DMS 500 [Class 4 circuit] switches," says Global NAPs’
chief executive officer Frank Gangi.

Second, Convergent managed to carry live traffic within four hours after bringing its
switch to Global NAPs’ Boston office, while Nortel Networks (www.nortelnetworks.com) could not claim the same
for its DMS 500 after two months, Gangi says. "That shrinks my time to market from
forever to basically zero."

At the same time, he adds, "the Convergent switch is a Swiss army knife that can
help us migrate our entire network to ATM while also talking to any other network, whether
IP or ATM or the public switched telephone network."

For Global NAPs and SBC, integrating services onto one backbone with one, common
transport infrastructure has become the most economical path.

"Is ATM optimized for voice?" asks SBC’s Sigarto. "No, nor is it
optimized for IP alone or video alone, but we need to build not six optimized networks for
six separate services at six times the cost, but one network that can accommodate all
those services, and ATM gives us the capability now to build that one network, and it may
cost us 11/2 times what a single-service network would."

Graph-ATM Rides Last-Mile
Integrated Access Wave

Match This

These changes in network fundamentals may raise the stakes for all carriers. RBOCs in
particular can call the technology tune, as they provision more than 90 percent of all
access lines, notes Tom Nolle, president of telecommunications consulting firm CIMI Corp.
(www.cimicorp.com).

Where new players Global NAPs and 2nd Century have committed $50 million and $30
million, respectively, SBC will spend $6 billion over the next several years. Other RBOCs
have vowed to spend equally impressive amounts to transform their networks to packet
transport.

In short, the type of technology that RBOCs provision local lines–with ATM switches,
IADs and DSLAMs, for example–matters for all carriers that must either access or compete
with those networks, especially if the technology becomes difficult for competitors to
unbundle for resale.

"It’s well established that investment in packet technology can lower the costs of
networking," says Nolle. "But that’s meaningless if the savings gained can be
wiped out by reseller arbitrage."

Incumbents like SBC gained relief from having to unbundle and wholesale packet services
last September, when the FCC issued a new UNE list–those pieces of the incumbent’s
networks that must be made available to competitors. Incumbent phone companies must
provide local loop access and other basic network elements, but they aren’t required to
offer competitors access to new high-speed data networking systems.

"By not requiring incumbent carriers to unbundle DSL equipment, the FCC recognizes
the importance of facilities-based competitors," Steven Gorosh, general counsel of
national, facilities-based DSL competitor NorthPoint Communications Inc. (www.northpointcom.com), said at the time. The
decision, he added, will prompt further investment in facilities-based DSL deployment by
both incumbents and competitors.

According to SBC’s Sigarto, that ruling played a small strategic role in SBC’s decision
to commit to its broadband network rebuild. "It was certainly one of the key
attributes, but only one among others," he says.

Yet even if the RBOCs eventually must unbundle their broadband network and service
elements, Nolle says, ATM’s elegant, dynamic bandwidth provisioning capabilities enable a
facilities-based carrier to create services that are customized for each end user.

The more customization, the more difficult for resellers to replicate without ATM
facilities of their own.

Certainly, some new competitors are taking that facilities investment challenge. For
example, while Global NAPs applies ATM to bulk line wholesale in its backbone, 2nd Century
and Gabriel Communications Inc. (www.gabrielcom.net)
are determined to effectively over-build phone companies’ circuit-switched local loops
with integrated access networks based on ATM packet transport.

Sporting its own $30-million contract with Convergent Networks, 2nd Century
successfully completed interconnect testing last summer, carrying voice traffic between
2nd Century’s ATM-based local exchange network and incumbent GTE Corp.’s (www.gte.com) facilities in Tampa, Fla., all under the
control of standard Signalizing Systems 7 (SS7) signaling.

For its first local ATM telephone transmission, 2nd Century used Convergent’s ICS in
conjunction with VINA Technology Inc.’s (www.vina-tech.com)
Multiservice Xchange (IAD) to encapsulate in ATM cells all voice, data and video at the
customer site; then Advanced Switching Communications’ (www.asc1.com)
RBOX Multi-Service Aggregator aggregated traffic from those IADs, passing it to the ICS
switch.

VINA, along with Accelerated Networks Inc. (www.acceleratednetworks.com), Sonoma Systems
Inc. (www.sonomasystems.com) and other
manufacturers are developing ways to deliver local calling features via IADs, which will
be necessary to bring local ATM telephony into parity with the legacy PSTN. TeraBridge
Technologies Corp. (www.terabridge.com) has
launched an interoperability laboratory to prototype complex network signaling
environments for vendors and carriers participating in the ATM Local Telephony Alliance (www.altainfo.org), and it is pitching its PathMinder
software suite for call control session management.

Further, Convergent, TeraBridge and half a dozen IAD vendors have agreed to use the
International Telecommunications Union’s (www.itu.int)
Q.2931 call control signaling standard and to implement Q.2931-to-SS7 interworking,
enabling the translation of PSTN local call features to any local ATM system.

"Call control is now decoupled from transport," says Seng Poh, vice president
of technology and business development for Convergent. "So now you can define new
features, program them on open softswitch servers, and have them run across any network
that can be signaled."

Provisioning In Play

The emergence of DSL and other broadband access technologies, combined with packet
telephony technologies and customer requirements for delay-free voice services, makes DSL
and ATM natural bedfellows, according to ATM advocates, who note that many DSL systems
already are driving ATM down to the customer premises.

Pitching ATM as the best quality assurance for voice over DSL (VoDSL) traffic, IAD
makers are adding DSL interfaces and partnering with VoDSL gateway makers. "Service
providers are saying they want to reduce costs but not at the expense of the customer’s
experience," says Matt Howard, vice president of marketing for IAD maker Vertical
Networks Inc. (www.getvertical.com), which has
partnered with several VoDSL gateway makers. "We expect it will be 18 months before a
customer could go completely IP in the last mile."

Heidi Brandt, vice president of corporate marketing for Sonoma Systems, which, like
Vertical Networks, has integrated PBX capabilities in its Sonoma Xchange IAD, agrees.
"We just don’t see service providers carrying IP services that require QoS (quality
of service) except over ATM."

Indeed, according to industry researcher Cahners In-Stat Group (www.cahners.com), IP telephony-based services are the
key driver behind a rise in ATM investments by ISPs. Sales of wide-area ATM switches to
service providers saw growth of 25 percent during the second quarter of 1999, growing from
$441 million to $554 million–following only 3 percent growth in the first quarter of the
year, Laurie Gooding, senior analyst with Cahners In-Stat, says.

"ATM switching and VoIP gateways will see parallel growth throughout 1999,"
Gooding says.

Whether it travels as VoIP over DSL or as VoIP over ATM over DSL, new VoDSL that supply
up to 16 voice circuits per customer "will increase the need to connect with a switch
that can talk with the PSTN, and that can either be a $5 million Class 5 switch or a
$500,000 next-generation, class-independent switch like ours," says Dan Simpkins,
president and CEO for Salix Technologies Inc. (www.salix.com).
Salix is the maker of class-independent switches that constitute large-scale
voice-over-any-transport gateways.

Whatever the underlying transport, integrated voice and data access requires the
ability to route multiple services over a single pipe and to provision bandwidth,
encryption, firewall, filtering and any number of other network resources on a per-session
basis.

"The urgent need for dynamic, rapid provisioning systems is in the metropolitan
area, where broadband access will push capacity requirements from kilobits to megabits per
user," says Olov Schagerlund, chief executive officer for Dynarc, whose DTM switches
provide a "thin layer" between optical and IP networks for transport of
integrated services. "You must have a transport layer that makes it easy to provision
new services, because service providers will need to launch and relaunch new services,
experimenting to find the killer application."

Even IP router king Cisco Systems Inc. (www.cisco.com)
is targeting this rapid provisioning and packet trunking market with its IP+ATM family of
carrier multiservice platforms.

In December, carriers’ carrier Williams Communications Group (www.williams.com) bought the newest product in that
line, the MGX 8240 private line gateway. The MGX 8240 is designed to boost the value of
multiservice ATM packet networks by providing ATM trunking interfaces for private line,
T1, circuit-switched voice traffic, and T1 IP services, which includes virtual private
networks.

"With more than $24 billion in annual leased line service revenues at stake,
service providers need to turn up reliable and value-added services faster than the
competition," says John Morency, executive vice president, Sage Research (www.sageresearch.com), who praises the gateway
product.

Gabriel Communications, 2nd Century, Global NAPs and SBC, as well as Sprint Corp. (www.sprint.com), with its Integrated On-Demand Network
(ION), have decided that ATM provides that dynamic provisioning, fail-safe traffic
engineering and QoS guarantees on a per-connection basis.

However, IP advocates, such as backbone Terabit Switch Router maker Avici Systems Inc.,
(www.avici.com), argue that routers are the logical
nexus for packet service provisioning.

"We believe the dynamic provisioning solution lies ultimately with intelligent
routing directly into optical wavelengths or via optical cross-connects, because the
router is the device with visibility into the data stream," says Pete Chadwick, vice
president of product marketing for Avici.

Still emerging from the Internet Engineering Task Force (www.ietf.org)
and in product development among router and switch makers, a multiprotocol label switching
(MPLS) standard proposes to enable ATM-like virtual circuits between points on IP
networks.

"There’s a lot of interest in learning to do traffic engineering via MPLS, and to
have that interwork with optical provisioning systems," Chadwick says. "One
service provider tells us it expects to have terabit routing at its edge and all optical
switching of huge capacity in its core, so there are a range of visions in play."

For the first time in service provider local loop history, ATM has become the lens for
one of those visions.