VoIP Means Business. A Telecommunication Consulting and IT Professional Services Company

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1 A Telecommunication Consulting and IT Professional Services Company VoIP Means Business By Manuel Pablo Lorenzo May/25 / SW 113 Terrace Miami, FL Phone Fax

2 Introduction It's no secret that the future of Voice over Internet Protocol (VoIP) as a viable business is at stake. F or years, the IP-based technology at the core of Voice over Internet Protocol (VoIP) has been tinkered with, tweaked and refined. Now, it's time for the ultimate litmus test is there a VoIP business, and how profitable can it be? Though few hard revenue and ROI (return on investment) numbers are known to exist, most experts agree the business case for VoIP is at least appealing. With worldwide voice revenues expected to top $171 billion by 2007, according to a recent Frost & Sullivan study; and the cost of activating a VoIP subscriber down to about $600 and falling, with an 18- to 24-month payback on capital investments and installation costs, the business case for VoIP looks promising. In fact, the VoIP business will be chasing some strong revenue numbers. For instance, cable telephony is expected to generate $534 million in revenue this year. But in 2007, revenues are projected to grow to $1.9 billion, according to Insight Research. The flock of believers is growing, yet getting a piece of the impressive revenue predicted for the VoIP business will require some creative business modeling and savvy decision-making before a true belief system can be developed. The value proposition of VoIP today is more on the cost savings side, and the most compelling business cases will be built by the largest providers of voice and data services, and cable will be in that space. The VoIP arena is being filled with an assortment of cable MSOs (Multiple Systems Operators), softswitch and circuit switch equipment manufacturers, software developers and network management companies. Each is adding a piece to the ultimate VoIP business case, which is still a work in progress. There are a variety of business cases out there, and VoIP wholesalers are growing a business too. Carriers like AT&T and others say they want a piece of the VoIP pie, while the smaller players can't attain the economies of scale to compete with the big guys. 2

3 AT&T Broadband recently announced revenue-per-unit of $55 and a capital expenditure of $650 per subscriber for its broadband services, including VoIP service in select markets, a clear indication that voice service is proving to be an asset. Comcast, Cox Communications and Time Warner Cable are three of the bigger names in the VoIP hunt, and all are currently developing their business models. All VoIP business models have operational challenges such as operational support system and billing system integration, lingering regulatory issues and technical concerns such as providing emergency and lifeline services. Obstacles or not some service providers are pushing ahead with their VoIP strategies, albeit cautiously, and cobbling together a workable business plan for the nascent service. Commercial vs. Residential VoIP's commercial business case looks even more appealing than its residential model, experts say, yet it's caught in a similar time warp. With the influx of telecommuters, satellite offices, industrial parks and newbuild areas, VoIP's commercial business looks promising. IP-centric services (including VoIP) enable several branch offices and telecommuters to call for competitive rates, and the cost savings are much more significant with VoIP and services such as VPNs (virtual private networks). For cable MSOs such as Comcast, the VoIP commercial business case is being built from the bottom up. The technology is there, and it's good enough to go commercial. Comcast is focusing on where they can drill down and get OSS (Operational Support Services) issues resolved. It's an opportunity for additional revenue from small- to mid-size businesses as well. Small business applications can be profitable. Businesses and industrial parks that run right by networks can really benefit, as well. There's a real opportunity providing VoIP to the commercial side. 3

4 Latin America: a major Market The move to IP as a transport mechanism and the growth of market minutes to Latin American countries are considered the major boons to international wholesalers and resellers. According to ATLANTIC-ACM Inc. wholesale market analyst Taher Bouzayen, research shows that Latin American countries led the way in 1999 for international circuit-switched traffic outbound from the United States. The countries in South and Central America and Mexico accounted for 27 percent of the total international traffic emanating from the United States, according to a 1999 ATLANTIC-ACM study. Of that 27 percent, half the calls went to Mexico. The percentage for Latin American countries compares to percent of outbound calls to Europe and percent to Asian countries. remain under a state-controlled monopoly. The data shows that large Hispanic communities within the United States indicate the Latin American market will continue to grow. The emergence of IP as a transport mechanism, particularly in Asian and Middle Eastern markets, is a major wholesale, resale growth area. The significance of Asia and the Middle East is that those are regions where circuitswitched infrastructures are not well-developed or IP used to be an arbitrage way to beat circuit-switched, but given the growth right now, it is becoming a substitute for circuit-switched. With all the technologies being developed today, IP is catching up in terms of quality and service. Deregulation is steadily under way in most Latin American countries, bringing with it increased competition, decreased margins, and flat (or declining) revenues. For companies to succeed in this highly competitive market, they must understand the forces at work and be prepared to 4

5 respond quickly. Those who fail to respond risk falling victim to the "death of long distance" phenomenon. Internet Telephony is attracting more and more users because it offers tremendous cost savings relative to the PSTN. Users can bypass longdistance carriers and their per-minute usage rates and run their voice traffic over the Internet for a flat monthly Internet-access fee. Understanding the PSTN The Public Switched Telephone Network (PSTN) is made up of local exchange carriers (LECs) and interexchange carriers (IXCs) that are governed by Local Access and Transport Area (LATA) boundaries. LATA is the geographic region set up to differentiate local and long distance telephone calls within the U.S. Telephone calls between parties within a LATA (intralata) are handled by the local telephone companies and are under the jurisdiction of the state's public utility commission. Calls between LATAs are handled by interexchange carriers (IXCs) and are governed by the FCC (Federal Communications Commission). 5

6 Although Above PSTN illustration shows one LEC within one LATA, state regulations may allow multiple LECs within the same LATA. Note that IXC 2 does not have POPs in LATAs 1 and 2 and must have a reselling agreement with IXC 1 in order to gain access to those areas. Building a VoIP Telephony Network Internet telephony refers to communications services voice, facsimile, and/or voice messaging applications that are transported via the Internet, rather than the public switched telephone network (PSTN). The basic steps involved in originating an Internet telephone call are conversion of the analog voice signal to digital format and compression/translation of the signal into Internet protocol (IP) packets for transmission over the Internet; the process is reversed at the receiving end. Unfortunately, not everybody has access to the Internet and today, VoIP telephony should not be restricted to communicate people with Internet accessibility, it has to allow telephone conversation with other parties connected to the traditional Telco system or PSTN. Therefore it is necessary that the VoIP Telephony Network must interface both networks: PSTN and Internet. In simple words: you can not move to VoIP without cutting the PSTN cord. The Internet Telephony Gateway or core of this network is integrated by the following items: Class 5 Switch - AT&T's name for the type of switch used in a local telephone end office. It controls a group of local telephone lines (local telephone numbers) and provides customer services such as call waiting, call forwarding, and many other features. 6

7 Internet Gateway - switch that can process the signaling for all types of packet protocols. It should be able to control connection services for IP calls, select processes that can be applied to a call, provide routing for a call within the network based on signaling and customer database information, and transfer control of the call to the PSTN network if required. Application Server This server provides the required back-end support and management functions such as provisioning, authorization and identification of subscribers, quality of service (QoS) records, billing, etc. Every business has to have the proper backoffice support to control and ensure profitability; VoIP Telephony is not the exception. The Application Server play a key role authorizing and verifying user, keeping track of their pre-paid or post-paid accounts, controlling all calls routed to ensure the proper charge of long-distance fees, keeping all required records to generate detailed billing and the end of the month, etc. Remote Point-of-Presence With the main Internet Telephony Gateway operating in one or many LATAs, it only can provide to its customers local telephone numbers related to the area operation. Users wanting to make calls to a person that is not a customer of the network and located in another geographic location will incur in long-distance charges, because the call will travel through the PSTN. The idea is to rely on the public Internet to provide telephone service between/among geographic locations that today are high-tariff and high-traffic areas. By expanding the network installing POPs (Point-of-Presence) on additional area will guarantee that the IP call will be transported via the Internet rather than the PSTN (IXC); once the IP call is delivered at the POP, it will be terminated by the local LEC. In this way the costs of the call are reduced considerable. Another advantage of having a POP in one specific area is that local phone numbers can be offered to customers. The requirements for a POP can be pretty simple, only the Internet Gateway, high-speed Internet connection, and some telephone lines from the local LEC is required. Since the POP and the main Internet Gateway are connected and 7

8 trusted, the local POP can rely on the Application Server to authentication of users, call control, validation, billing, etc. In a simplified view, the IP Telephony Network looks as follows: 8

9 VOX3: a Business Opportunity DSLi Corporation, a South Florida based premiere Voice and Data Service Provider Company, combining the power of being its own CLEC with the connectivity of high speed Internet access has developed VOX3, which is a robust server platform hosting IP voice and data applications required to provide clients with an easy and familiar interface to manage and administer all their messages. VOX3 web portal offers an intuitive navigation for users to manage their voice, fax, and messages, as well as capabilities to store contacts information, tasks, and appointments on 25MB of disk storage (increasing this capacity is optional). Import and export capabilities are standard. When subscribing to the VOX3 service, the customer receives two local phone numbers: a fax number, and a voic number. Anyone in the world can send faxes to the VOX3 fax number, or a voic can be left by dialing the voic number. Using a computer connected to the Internet, the user can place unlimited calls or send faxes to South to anyplace within the network for free. Also the user can check voic messages, s, and view your faxes over any Internet connection, avoiding long distance charges. VOX3 allows to make phone calls to and from anywhere in the world bypassing the PSTN (Public Switched Telephone Network), therefore reducing considerably the cost of the call. Call Wizard (an icon on the web portal) gives you real time call control using any computer with any Internet connection. SIP (Session Initiation Protocol - an IP telephony signaling protocol) Devices allow the use of a regular phone to make calls using VOX3. With a click of a mouse, the user can: Answer the call using your computer Answer the call with a regular phone Transfer the call to another phone Transfer the call to an IP address Send the call to a voic Play any voice mail greeting the user select. If user does not send a command to the VOX3 server, the call goes to the voice mail after a user-defined number of rings. DSLi is expanding its VoIP Telephony Network focusing primarily in Latin America and the U.S., local providers are helping to expand their worldwide telephone network. DSLi is rapidly expanding into the North, South and Central America, as well as in the Mideast, and this affords capable providers the opportunity to share in their growth by simply reselling their 9

10 services or installation a POP as another extension of their network. DSLi offers its partners all back-office support, customer care center, and technical support. Specifically, the idea is to route international calls from/to the USA and Europe via public internet to the local POP, and there, via telecom equipment, these calls will be transmitted via the local phone network (LEC) in the particular country, thus saving substantially on the regular international tariff. Since in general intra-city calls are much more inexpensive than inter-city calls within a particular country, the more points of presence that a provider can establish within a country, the more possibilities exist for a profitable business model. DSLi s state-of-the-art technology and over five years maturing VOX3 make them one of the leaders in distributed VoIP Telephony networks. More important, their back-office support, customer service, and technical support is supporting today a large customer base with high level of customer satisfaction. Conclusions VoIP products and services transported via the public Internet is becoming a niche market without any doubts. While many communication companies, such as Comcast and Cablevision, have entered the telephony market for the first time via VOIP, DSLi has a pre-existing, VoIP telephony offering. Not only do today's VOIP systems match the voice quality of regular phone systems based on the TDM (time division multiplexing) system they're adding features that users never would have imagined. For example, with VOIP, callers can reach you no matter where you are by dialing your phone number. And with a Web browser, you can retrieve your voice mail. However the user s main benefit, of course, is cost savings. Finally, IP telephony can be a godsend for the frequent traveler. A VoIP phone or for more convenience a VoIP soft phone installed on a laptop can be used to make and receive calls from any location in the world, as long as there is access to the Internet. In many cases broadband access is not even necessary, though it usually helps considerably with voice quality. 10

11 About DSLi Corporation Based in Miami, DSLi is the premiere Voice and Data Provider Company combining the power of being its own CLEC with the connectivity of high speed Internet access. In addition to offering Voice and Data service, DSLi facilitates web site design/development, web hosting, internet security, and is an Information Technology (IT) enabler. For more information contact DSLi at visit their web site or call at , or About LoNet, Inc. Based in Miami, LoNet is a Telecom Consulting and Professional Services company. LoNet has become one of the leading technical consulting and service providers offering high-end engineering professional services, including managed services, network consulting, intelligent maintenance and management solutions for emerging generation of communication networks. For more information contact mplorenzo@lonet.us, or call at or