22 qos voip

Unless you've spent the past year in a sensory deprivation tank, you've probably heard more than a little about VoIP. The story lines range from "VoIP is your ticket to untold riches" to "VoIP will sweep today's giants into the dustbin of history." As with any major technology shift, the truth lies somewhere in between. If you're a service provider, VoIP represents both opportunities and risks, and when and how you embrace this trend will determine how you see it. This is particularly true for cable operators.

Why is VoIP important? In a word, economics. The underlying economics of VoIP are compelling and, like the force of gravity, inevitable. VoIP is simply the packaging of voice traffic onto existing data networks and moving it from Point A to Point B cheaply, and without any of the taxes or tariffs associated with traditional voice calls.

Carriers have been using this technology for years to route their internal traffic. Adventurous consumers have been using it for years to make low-quality calls from one computer to another.

So if VoIP has been around for years, why is everyone talking about it now? Because the widespread availability of data networks, combined with the latest generation of VoIP technology, now enable carrier-grade calling from the dialer all the way through to the called party. This means new competitive offerings, and new revenue opportunities, are suddenly available.

This is in part due to turnkey offerings from pure-play VoIP service providers. Cable operators and telcos are aggressively entering the market. For example:

* Comcast recently announced it would offer telephone service over the Internet to more than 40 million households by 2006.

* Time Warner Cable said it would offer telephone service to 50 percent of its 11 million customers in 2004 and the rest in 2005.

* In-Stat/MDR forecast cable telephony subscribers to top 10 million by the end of 2003.

* AT&T announced a consumer and small-business VoIP service named CallVantage and is beginning a national rollout.

Triple Play

While pure-play VoIP companies are betting their futures on providing digital voice services, existing providers are interested in VoIP for a different reason: competition. Telcos, cable operators and satellite companies provide overlapping offerings, which results in fierce competition. A customer shopping for high-speed Internet access can choose between DSL, cable and satellite. A customer shopping for video can already choose between satellite and cable; video-over-DSL services are being rolled out in Asia and Europe. In these highly competitive areas, the inclusion of bundled voice services can influence a customers' buying decisions. Even better, it makes it harder for customers to switch providers.

Providers are betting the winning strategy is to offer customers the triple play of voice, video and data. Many service providers are aggressively pursuing this strategy. Some are developing their own homegrown solutions, and others are partnering with VoIP service providers to get to market faster.

Cable and VoIP

When it comes to offering VoIP services to end customers, cable operators are uniquely positioned to benefit. Here's why:

VoIP does not work well with today's broadband satellite technology, which relies on geostationary satellites orbiting 22,000 miles from earth. All data must make a 44,000-mile round trip to the satellite, which adds about a half second of latency. While VoIP over satellite technically works, the user experience is poor, and not likely to be embraced by paying customers. This will remain the case until satellite progresses to low earth orbit technology--not an immediate prospect.

For incumbent telcos that already offer higher priced voice services, VoIP is a defensive strategy. They stand to lose the most from VoIP adoption, and are only rolling out these services reluctantly. They would rather lose a customer to their own lower-margin service than to a competitor.

This leaves cable operators. For them, adopting VoIP is an offensive strategy with many benefits:

For starters, the high-bandwidth, low-latency data service provided by cable is a perfect fit for VoIP. Call quality is high, and the bandwidth used--as little as 20 kbps--is mostly sitting idle anyway. The customer experiences no reduction in overall QoS.

Further, a VoIP gateway is easily installed by the end user. That means VoIP provides an additional high-margin service, at virtually no customer acquisition cost. Cable operators can drive more revenue from their fixed investment.

In addition to a flat monthly fee, voice services provide additional recurring revenue from national and international long-distance call minutes. What's more, calls from one subscriber to another cost virtually nothing. Offering free customer-to-customer calling not only increases the stickiness of the service, it provides a powerful incentive for the friends and families of existing customers to choose the cable operator over a competitor.

Adding VoIP lets cable operators fight back against DSL/phone service bundles by providing the missing piece of the triple-play strategy. The net result is that the customer saves money, and the cable operator gets a more loyal, higher-revenue, harder-to-switch customer.

[FIGURE 1 OMITTED]

The Trade-Off

In today's environment of continuous competition, all service providers must innovate just to stay in the same place. The competitive advantages of a VoIP offering, and the underlying economics, make this particular innovation inevitable. But the devil, as they say, is in the details. The "when" and "how" of offering VoIP are almost as important as the "if."

The cost of adopting an innovation (including direct cost, cost of business integration, and risk) starts to decline quickly as the innovation is turned from a raw technology into a complete offering. After that point, the cost declines much more slowly.

At the same time, the cost of failing to innovate tends to rise slowly, until the point where competitors have ready access to a low-cost, easy-to-deploy version of the innovation. After that, the cost of doing nothing rises quickly. Other players simply out-compete the laggard.

By overlaying these curves, it becomes clear that the time to adopt an innovation is before the crossover point where the cost of doing nothing overtakes the cost of innovating (see Figure 1).

Looking at the state of the VoIP market today, one thing is clear: The time to set a VoIP strategy is now.

This year, expect to see even more service providers entering the market. Some, especially those with a strong telecom background, will develop and deploy their own homegrown VoIP offerings. Others, particularly those with a core competence in video services, will partner with a dedicated VoIP company that brings a complete turnkey solution and market specific know-how. Either way, there is no question that the VoIP revolution will make 2004 a very interesting year for communications service providers of all types.

Rick Scherle is the senior vice president of marketing for i2Telecom International (rscherle@i2Telecom.com).