The network business - strategies for tomorrow

By Konstantin Nikashov, VP, External Economic Activities, MERA Systems

Voice over IP, VoIP, is revolutionising the telephony market, changing the competitive landscape and forcing operators around the world to re-think their business models and strategies. VoIP offers customers much lower calling rates - especially for longdistance calls; it also offers users a great many advanced features and lets operators add value-added services. Sophisticated softswitches ensure quality of service by monitoring service parameters and dynamically re-routing calls; they also help operators find the least-cost/high-quality routings needed to maximise profitability.

The all-embracing tendency towards globalization brings an ever-increasing demand for communication. The revolutionary VoIP, voice over IP, technology has reshuffled the telecom landscape and the competitive edge of existing and emerging carriers. Its popularity is due to the many opportunities it offers both carriers and customers, including greater flexibility and more attractive prices compared to the high long-distance rates charged by traditional operating companies. VoIP also offers a wide range of additional calling features, such as call management functions; these functions are free of charge, unlike those offered by PSTN, public switched telephone network, operators.

Tense competition between legacy telephony providers and VoIP carriers, and the rapid evolution of technology, requires advances in service reliability and quality of service. Carriers realise that the main reason home and enterprise users move to VoIP is to reduce communication costs, but they insist upon receiving the same sort of quality they have become accustomed to. To date, enterprise customers are still wary about VoIP quality and are likely to return to traditional, legacy, telephony services if they feel their needs are not being met. If VoIP networks do not become as reliable as the PSTN, VoIP carriers won’t win their customer’s loyalty. Although the negligible cost of a VoIP phone call might make poor quality tolerable for some, most business users expect to hear a pin drop and will not tolerate outages for any reason.

An obvious approach to providing QoS, quality of service, calls for reliable, redundant, equipment and systems. VoIP networks must be fully redundant in order to preserve and maintain call information even during equipment failures. To ensure ample QoS and real-time delivery carriers deploy class 4 softswitches (call agents, caller servers or media gateway controllers) as the backbone elements of their VoIP networks. Intelligent routing capabilities enable softswitches to monitor QoS parameters across IP-networks and detect performance degradation. The ability to switch dynamically between paths with different QoS minimizes latency, enhances routing efficiency, enables creation of customer-tailored services and provides Service Level Agreement, SLA, assurance. Softswitches provide a vast choice of analytical capabilities to enable realtime monitoring of network performance and protect carriers from QoS theft - deviations between the QoS carriers claim they are delivering and the QoS actually received. Rigorous control of QoS, constant quality assurance, builds customer loyalty by better satisfying their needs.

At the same time, the competitive struggle to maintain customer loyalty puts constant pressure on their rates, drives them down, reduces profit margins and forces carriers constantly to revise their strategies to maintain their revenues. To accelerate their ROI, return on investment, and maximize profits telcos need powerful solutions that enable them to respond flexibly and promptly to the pricing whims of partners and customers. The ability to offer customer- specific services, tailored to their payment preferences, leverages carriers’ competitive advantage and keeps them from being left behind by the competition.

Best-of-breed class 4 and 5 softswitches with highly intelligent routing capabilities maintain information about the tariff plans of the operator’s networking partners, as well as per-route QoS data, in their databases. Using this information, they perform look-ahead route hunting based on ‘route appeal’ - the most attractive combination of cost, quality and other business-critical parameters. Utilizing these flexible routing schemes, carriers can offer services based on SLAs and optimize peering with their partners. Another important feature of softswitches is automated profitability control; this handy feature safeguards the carrier against mistakes and ensures that they are not losing money at any given moment. The operational analysis and reporting tools provided by the best softswitches enable telcos constantly to keep their ‘finger’ on the pulse of their networks and make profitability projections based on available pricing and traffic forecasts. All these features enable carriers to select the best business partner in each particular case, for each connection, to stay afloat and enhance their business profitability.

Finding a VoIP business model

The rapid development of VoIP technology and the rise of a large number of alternative telcos have led to increased demand for traffic aggregation services and, as a result, given birth to a wholesale market for IP traffic capacity. The abundant supply of VoIP services has brought prices down - recent research shows that wholesale termination/origination revenues are experiencing declining growth rates.

VoIP carriers are now poised to change their business strategies. The traditional VoIP business model - pure wholesale or pure retail - is no longer effective in the high-speed business environment of today. Massive change is now about to overtake the trillion-dollar global VoIP industry. The future of the VoIP business, as we see it, is moving from pure wholesale or retail operations into a mixed-mode, multi-service business. In this way, the VoIP providers are building diverse revenue streams derived from a number of innovative communications services. Industry players will use their own capabilities - and their peering partners’ - class 4 and 5 softswitches to route VoIP traffic between originators and terminators. This will tend to reduce the excessive number of intermediaries they must currently use and, accordingly, enhance the revenues. Under these circumstances, the requirement for fault-tolerant interoperability will be more critical than ever before.

Albeit cautiously, VoIP carriers are pushing ahead with their new strategies, making workable business plans for the nascent service. Today, we can no longer see clearly where telecommunications end and content service provision begins. Call costs continue moving towards zero and revenue-hungry carriers have to rethink their profit structure. In the near future it will be value-added services that will drive operator revenues. Better conferencing support, video, advertising supported calls, surveys and polls, voicemail, personal video recorders - we can only imagine what sorts of services VoIP providers will find profitable. A wide range of extra services, however, can help increase ARPU, average revenues per user, and reduce customer churn, which is of utmost importance in a highly competitive, customer- centred environment.

Carriers will compete not only based on price and performance, but also with regard to delivery time, which will be crucial when introducing value-added services. Those who move more quickly will penetrate the market, deploy their service suite and survive, others will quit. To capture market-share, win the competition, carriers and service providers will need reliable technologies that enable them to create new service suites quickly. This will lead to increased demand for open-standard class 5 softswitches. They provide a costefficient alternative to traditional switches built on legacy architectures that are often incompatible with some of the newer equipment that services operators seek to incorporate into the network.

Class 5 softswitches reduce up-front costs; ensure carrier-to-carrier and carrier-to-enterprise connectivity and guarantee unsurpassed technical flexibility now and in the future. This sort of network equipment enables carriers to solve various interoperability issues, allows them to work in a multiple-vendor environment and provides as well secure interconnection between otherwise incompatible networks, regardless of the equipment or protocols used.

This new approach, which facilitates value-added services, offers carriers and service providers tremendous opportunities and many ways to improve their ROI, but also poses considerable challenges. Value-added applications will completely redefine the value chain, competitive landscape and available customer choices.

All of these trends clearly indicate that VoIP carriers must have the ability to see the multidimensional aspects of what is happening on their networks. Understanding the impact of these changes will undoubtedly help networking providers benefit from new opportunities.

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