Sponsored By

April 1, 2004

10 Min Read
What's Driving VoIP?

By Tara Seals

While productivity features are driving business and consumer demand for VoIP, whitelabel programs are accelerating its deployment by cablecos, CLECs and other providers.

Retail offers available for rebranding include IP Centrex and hosted IP voice systems with enhanced features like unified messaging for businesses, and broadband telephony via the Internet to replace local dial tone for consumers.

“2003 was the year of the bundle,” says Judy Reed Smith, CEO at analyst firm Atlantic- ACM. “2004 will be the year for VoIP.”

Indeed, a new study by AT&T Corp. shows “VoIP is now ready for prime time,” says Cathy Martine, senior vice president of Internet telephony and consumer product management for the carrier. According to the study, three out of four adults have heard of VoIP - a percentage about four times the consumer awareness of Wi-Fi (19 percent) or DSL (66 percent). “This research unquestionably validates consumer interest and excitement around VoIP,” says Martine. “It’s clear that many consumers understand the ‘wow’ factor of VoIP services. We’re on the verge of a new era of communications services when any ‘thing’ - phone, PDA, wristwatch or computer - will connect any where.'”

“VoIP as an enabling technology is now changing not only the carrier landscape but is causing an enormous shift in the way enterprises and consumers make calls,” says ITXC Corp. Chairman and CEO Tom Evslin. “Today, VoIP also is enabling emerging VoIP-based service providers to win retail customers from incumbents. At the same time, VoIP is driving down the total cost of ownership for rapidly growing numbers of enterprises and traditional carriers. These trends are being driven by the cost, speed and scale advantages of VoIP. Service providers of all types are now rushing to achieve the benefits of VoIP for themselves and for their customers.”

Lee Story, senior vice president of VoIP technology at New Global Telecom (NGT), agrees and adds, for service providers VoIP is a hedge against churn. “Service providers are seeing attrition in their TDM lines, and the shift is to VoIP lines, which is growing,” Story says. “So part of this is an attrition defense, they need to cannibalize their own business to stay viable. Also, service providers can see this as profitable opportunity to deepen their falling profit margins; the fabric of the network is cheaper to operate, and there’s an overcapacity of bandwidth.”


More bang for the buck also is the value proposition for IP telephony’s users. VoIP’s residential users reap the benefits of cheap phone service, along with whiz-bang features like findme, follow-me and IVR dialing. Meanwhile, packetized voice in the business world accelerates the transition to converged communications, eliminating the need for separate voice and data networks and allowing for infrastructure consolidation. And, enhanced features, such as presence technology, that spur productivity gains also are attractive to service providers’ customers.

Some say one reason for the interest from the business market is that VoIP is the first step to convergence. “There’s a big wheel that’s been churning called convergence, but it needs a killer app. That application is clearly voice,” says Anthony Christie, chief marketing officer at Global Crossing Ltd. “The reason voice is a killer app is that it’s the first step. It’s a very different experience than where we are today. Enabled via SIP, we will know where everyone is, and can connect by voice, then video. Imagine the productivity gains. It’s 18 to 24 months away.”

Global Crossing is working on interoperability testing for a VoIP-in-a-box offer with Nortel Networks Inc., Cisco Systems Inc., Avaya Inc. and Siemens ICN. The target release date is in the second half of the year.

“For businesses, carrier-class VoIP and bluechip hardware brands offering IP PBXs, plus the entrance of presence, will offer a behind-thefirewall experience with voice, video and data linked into Microsoft Directory Assistance - now there’s the promise of convergence,” says Christie. “It’s not just in the WAN.”

The features, rather than cost-savings, will start to pick up and drive this market, agrees Tim Bradley, senior vice president of VoIP product at NGT. “Find-me, follow-me functions; the ability to plug in an IP phone anywhere; unified messaging - that’s the key to the enterprise market. I think we’ll see the greatest growth in the small and medium enterprises, because VoIP can offer them a set of features not typically available to them today.”

The residential market is equally hot. According to a study from Parks Associates, 50 percent of households are interested in IP telephony (see chart below), and it’s that demand that will drive broadband adoption.

The firm found the average narrowband household could capture a net savings of $8 per month if it upgraded to broadband and began using a VoIP telephone service. This service combination, the report noted, could eliminate cost as an obstacle to greater broadband adoption. “Among narrowband households not interested in broadband, almost 60 percent cite price as the main deterrent,” says John Barrett, analyst with Parks Associates. “VoIP changes that equation by offering an overall net savings if you upgrade to broadband.”

For the economics to play out, a home would have to abandon traditional phone service completely. If a household uses VoIP service only as a second line and keeps its existing phone service, it would pay $30 more each month, Parks found.

“When does IP replace the bulk of the revenue?” asks Qwest Communication International Inc.’s Joe Glynn, vice president of product management. “That’s going to be a very long [time]. For years and decades you won’t see Class 5 switches ripped out of offices. To rip out the Class 5 switch says that every single person has moved off. So that’s decades away.” Nonetheless, he acknowledges the growth. “This will become mainstream,” he notes.

It could be that backup lines are the initial winners. Net2Phone Inc. offers Voiceline, a broadband telephony offer for small cable operators and CLECs. It bundles local, longdistance and interactive voice mail. The end user is the small office/home office or telecommuter, as well as the “teenager line” market, both of which are secondary line plays. It doesn’t include 911 or lawful intercept function, and no backup power, and the company says it’s taking off. “Inbound leads show growth in residential broadband telephony,” says Bryan Weiner, president of Net2Phone Global Services. “It’s a solution that is exploding.”


Getting to market quickly is an opportunity for wholesale VoIP. Spurred by the market demand and the promise of reduced customer attrition and churn, service providers are looking to remarket an out-of-the-box product, hosted and delivered from the underlying carrier, under its own brand.

“The (3)Tone service suite provides carriers and other wholesale partners a way to deploy a proven hosted voice service quickly, anywhere in North America, under their own individualized brands,” says Jack Waters, CTO and president of Voice Technologies for Level 3 Communications Inc.

Last fall the carrier introduced (3)Tone, a business-focused offer that it is marketing via existing channel relationships with SBC Communications Inc. and more than 20 other service providers and VARs. The hosted voice service, a replacement for PBX, IP PBX and Centrex, delivers a combined capital and operating savings of as much as 40 percent, says the company. An advanced version of the suite of services Level 3 obtained through its acquisition of Telverse Communications, the (3)Tone set of offers includes enhanced voice services, including Class 5 features, for deployment in a single- or multisite corporate environment.

Like Level 3, Volo Communications Inc., has a carrier-grade offering that includes service creation and voice termination over its VoiceOne MPLS IP backbone. In fall 2003, Volo Communications Inc. announced its Wholesale Packet Voice Service for ISPs, Tier 1 and 2 carriers, CLECs, DSL providers and cable companies. It bundles local and long-distance phone services along with a suite of enhanced calling features, such as voice mail, call waiting, call forwarding, caller ID, three-way calling, repeat dialing, call transfer, caller ID block and virtual phone numbers. These services are accessible from a standard PC, telephone or IP phone.

“Our Wholesale Packet Voice Service is a carrier-class solution that enables service providers of all sizes and types to begin offering advanced voice and packet services immediately with no upfront costs and no hidden costs down the road,” says Shawn Lewis, CEO at Volo Communications, which has 12 service provider customers and six in trials for its business and residential offers. Service providers who sign up for Wholesale Packet Voice Service are able to provide their customers full control over their choice of features, which can be easily changed as needed through a Web-based interface. Their customers will be able to perform online account management, including Web-based voice mail retrieval, view account activity and select phone numbers nationwide.

TransPacific Telecom Inc. offers a turnkey VoIP solution, VIVO COMPLETE, which enables ISPs and cablecos to become longdistance IP telephony providers in a matter of hours. “We offer a back-office management tool that includes provisioning, customer service, rate plans, and it’s pre- and postpaid,” says Stephen Thomas, CEO and chairman at TransPacific. “It automates all departments for running a phone company. The cablecos and ISPs don’t know how to run a company. All they do is use existing infrastructure and broadband connections, put in a VoIP edge device at the customer premises, and that’s it. No capex cost, no switches, no servers. They can be a phone company in an hour.”

Another offer available to get resellers into the race with a minimum of upfront requirements is NGT’s just-released, branded suite of IP telephony services, known as 6DegreesIP. The offer is crafted so that service providers can generate new revenue streams with a manageable transition from their existing business model. The first offer is a turnkey IP Centrex service. The reseller still must bring in voice gateways, connections to the PSTN and billing, although NGT is planning to launch interoperability testing with third-party providers to make the solution even more off-the-shelf.

Covad Communications Group Inc. plans to support the market entry of its wholesale partners offering their own VoIP products. This includes quality of service (QoS) standards and service level agreements (SLA). Covad intends initially to launch voice products that include unlimited local calling with the option of either bundled domestic long-distance minutes, or unlimited domestic long-distance calling. These products will support international and inbound toll-free calling. Local number portability, emergency 911 and directory assistance will be standard features. The products will be bundled with Covad’s broadband Internet access, Web hosting and corporate e-mail hosting services.

Even the behemoths of the voice industry recognize the opportunity. “The flexibility of AT&T’s wholesale offers assist service providers in launching value-added VoIP services, without investing heavily in the supporting infrastructure,” says an AT&T spokesperson. AT&T’s new residential VoIP offer will be available in cities across America to customers with any kind of broadband service DSL or cable modem technology. AT&T offers CallVantage, a consumer-focused broadband telephony. The carrier plans to launch CallVantage in 100 markets nationwide. Unlike a similar consumer offer from market leader Vonage Holdings Corp., CallVantage uses AT&T’s global IP backbone network. Service providers can choose from a set of options ranging from basic infrastructure management to fully outsourced arrangements. Also, AT&T has added emergency calling features to its residential broadband VoIP service via an agreement with Intrado Inc. In 2004, AT&T will expand its VoIP portfolio and aggressively market a full suite of VoIP-enabled services to business customers worldwide.


AT&T Corp. www.att.com
Atlantic-ACM www.atlantic-acm.com
Covad Communications Group Inc. www.covad.com
Global Crossing Ltd. www.globalcrossing.com
ITXC Corp. www.itxc.com
Level 3 Communications Inc. www.level3.com
Net2Phone Inc. www.net2phone.com
New Global Telecom www.ngt.com
Parks Associates www.parksassociates.com
Qwest Communications International Inc. www.qwest.com
SBC Communications Inc. www.sbc.com
TransPacific Telecom Inc. www.t-p-t.net
Volo Communications Inc. www.volocommunications.com

Read more about:

Free Newsletters for the Channel
Register for Your Free Newsletter Now

You May Also Like