© 2002 dresdner kleinwort wassertstein and cap gemini ernst & young - all rights reserved | 1 |...

© 2002 Dresdner Kleinwort Wassertstein and Cap Gemini Ernst & Young - All rights reserved| 1 |

IDATE Conference

IP Services and Voice over IP

• IP Services in Western Europe: The Case for a new IP Realism

• Pros and Cons of IP Technology

• Voice over IP

• Conclusions and What’s Next

Contact Details: Tolga Uzuner, Director, Technology Investments– [email protected]


Our study framework to discuss the outlook for IP Services over the next 24 months

IP Market Dynamics—Project Focus Areas

Critical study areas

Secondary factors

Consumer Content/ Services

Consumer Content/ Services

ConsolidationConsolidation

Emergence of New Players

Emergence of New Players

IP Migration Business CaseIP Migration

Business Case

Supply Side

Consumer Needs

Consumer Needs

Demand Side

Technology DevelopmentsTechnology

DevelopmentsAvailability of

FinanceAvailability of

Finance

External Factors

Corporate Applications/

Services

Corporate Applications/

ServicesIP ServicesIP Services

Corporate Customer

Needs

Corporate Customer

Needs

Other factors

.


The IP services market is still in its infancy but is increasingly recognised as a legitimate hope for the industry growth

• IP services are unlikely to provide a growth catalyst of the magnitude required to bring telecoms out of the current crisis

• The “converged network of the future” will be a hybrid network where IP and legacy services complement each other

• Shifts in the value chain and changing the dynamics of competition may cause vendors, service providers and systems integrators to focus on the same end-user attention

• With some exceptions (e.g. IP Storage), the technologies underpinning IP are relatively mature, and the industry is in a later stage of its life cycle:– Expect to see vendor consolidation and a shift to process innovation

– As in all other industries preceding it, the number of vendor/operators is likely to decrease over time, market leaders will consolidate their positions, and the nature of innovation will move from product to process innovation, the realm of the established vendor/operator.

• IP-based technologies have failed to live up to their promise due to the uncalculated/hidden costs associated with complexity (e.g device proliferation, unpredictable nature of traffic): – Hence, tech vendors offering products that solve complexity management issues are sure-fire winners.

– One of the few areas where we expect significant product innovation to occur and where we believe start-ups still have a reasonable chance of winning.


Looking at the traditional definition of communications did not allow for a clear segmentation of IP Services

DataData

Basic Connectivity

Basic Connectivity

Value Added Services


VoiceVoice

Basic ServicesBasic Services



• Local, national, long distance calls• Freephone, local anywhere• Directory assistance, contact centres

• Local, national, long distance calls• Freephone, local anywhere• Directory assistance, contact centres

• PBX and centrex services, voice mail, call forwarding, call waiting, call return, caller ID, conference calling, find me services

• PBX and centrex services, voice mail, call forwarding, call waiting, call return, caller ID, conference calling, find me services

• Leased Lines• Connectivity• Access

• Leased Lines• Connectivity• Access

• Network management, element ownership, security, hosting, storage provision, application provision, video conferencing

• Network management, element ownership, security, hosting, storage provision, application provision, video conferencing

Traditional Services Definitional Framework Unanswered Questions

Broadcast/ Media

Broadcast/ Media

Broadcasting Services

Broadcasting Services • Videoconferencing• Videoconferencing

• How to deal with voice services carried over data infrastructure?

• How to deal with with unifying sevices that combine voice and data services?

• How to deal with new services that result from convergence?

• How to deal with voice services carried over data infrastructure?

• How to deal with with unifying sevices that combine voice and data services?

• How to deal with new services that result from convergence?

* Courtesy of Fred Destin


Our own definition reflects three dimensions: type of service, infrastructure and delivery approach

IP Service Definition

• Internet access• IP-VPN

- Site to site- Extranets / branch

offices- Remote Access

• VoIP in corporate networks:- Basic voice services

• Value added voice services:- Voice mail- Call forwarding- “Follow me” services

- Call Centre Automation

• Video conferencing• Web-casting• Streaming

IP Connectivity Services

IP Voice Services IP Media Services Unified Services

• Unified messaging

QoS /CoS/Security/OSS/BSS features (not typically sold outright)

HostingPhysical/Digital

IP StorageStorage/Disaster recovery

IP Advisory Services

ManagedCustomer Managed (DIY)

Outsourced



These strong benefits gave rise to a set of IP-based communications offerings referred to as “IP Services”

IP Services are services that are sold by a service provider to customers and rely on and leverage IP

networking technologies for the exchange of information (packetised data, voice and other

media).



Overall uptake of IP services will likely be only moderate over the next 24 months

Explaining the ResultsExplaining the Results

• The IP services market is expected to grow from its current size of $14.5 billion to $17.5 billion in 2004/5, with a CAGR of 10%

• IP VPN is the foundation layer on which value-added services will be built

• VoIP will grow slowly, as it is not the optimal technology for scaling a voice business

• Video over IP and unified communications will experience high take up after 24 months

• Penetration of the IP storage market is low with huge growth potential

• The IP services market is expected to grow from its current size of $14.5 billion to $17.5 billion in 2004/5, with a CAGR of 10%

• IP VPN is the foundation layer on which value-added services will be built

• VoIP will grow slowly, as it is not the optimal technology for scaling a voice business

• Video over IP and unified communications will experience high take up after 24 months

• Penetration of the IP storage market is low with huge growth potential

Advisory

IP Services Growth/Margin MatrixIP Services Growth/Margin Matrix

$0.30bn

$4.08bn

$7.94bn

$1.36bn

$0.86bn

-10%

0%

10%

20%

30%

40%

50%

0% 10% 20% 30% 40% 50% 60%

Margin

CA

GR

(2

00

2-0

4)

Access & connectivity (incl. basic VPN)

Managed + Hosting/ Storage Services

NB: All managed and outsourced elements of IP services have been included with hosting and storage revenues to reflect similarity in delivery capabilities.

Converged Services

VPN features: Security/QoS

Players recognising IP-VPN (connectivity) as the foundation for upselling other services will likely be most successful.

Players recognising IP-VPN (connectivity) as the foundation for upselling other services will likely be most successful.


Although incumbent’s traditional franchises may look strong, new business models pose a serious competitive threat

Incumbent Traditional FranchisesIncumbent Traditional FranchisesLocal Loop

AccessVoice

TransportData

TransportValue-Added

Services Advisory

Access Network Specialists

Access Network Specialists

International Wholesale Voice over

Public Internet

International Wholesale Voice over

Public Internet

Co

mp

etit

ive

Ad

van

tag

esIm

pac

t o

n

IIncu

mb

ent

Regional Alternative Network Providers

Regional Alternative Network Providers

International/Metro Wholesale Data

International/Metro Wholesale Data

Virtual Service Providers

Virtual Service Providers

• Low infrastructure deployment costs

• Parent financial support (utility cos.)

• New, urban areas targeted

• Low infrastructure deployment costs

• Parent financial support (utility cos.)

• New, urban areas targeted

• Proprietary network management software

• Infrastructure light• Carrier non-

competitive

• Proprietary network management software

• Infrastructure light• Carrier non-

competitive

• Advanced networks built from ground up to support IP services

• Deep network penetration

• Liberated from debt worries by Ch. 11

• Advanced networks built from ground up to support IP services

• Deep network penetration

• Liberated from debt worries by Ch. 11

• Network designed from ground up to handle IP/MPLS

• Low cost• High-end service

capability• Some carrier

neutrality

• Network designed from ground up to handle IP/MPLS

• Low cost• High-end service

capability• Some carrier

neutrality

• Infrastructure light• Neutrality• Service expertise• International

flexibility• Contract renewal on

<1 year cycles

• Infrastructure light• Neutrality• Service expertise• International

flexibility• Contract renewal on

<1 year cycles

• Hits at local loop data

• Pricing pressure

• Hits at local loop data


• Hits at int’l voice transport


• Hits at int’l voice transport


• Alt nets with network rings and local tails threaten leased line business

• Alt nets with network rings and local tails threaten leased line business

• Hits at int’l & metro data

• Carriers outsource IP services transport—lessen infrastructure burden

• Price pressure

• Hits at int’l & metro data

• Carriers outsource IP services transport—lessen infrastructure burden

• Price pressure

• Hits at high-end services

• Undermines relationship with end customer

• Price pressure

• Hits at high-end services

• Undermines relationship with end customer

• Price pressure

Examples• 51 Degrees

• Urband

Examples• iBasis• ITXC

Example• Level3

Examples• ET&T• Vanco

Example• Interoute


For service providers, the key to growth lies in offering the right bundled propositions from an IP-VPN platform

Drivers/Inhibitors

Critical business need for secure Intranet connectivity

Financial pressure to reduce bandwidth bill

Legacy voice equipment is cheap and very efficient

QoS issues unresolved

Softwsitch architecture enables services today

Collaboration on voice & data improves productivity

High cost and low quality of ISDN service

Emergence of better compression standards

Integration of instant messaging agents to the desktop

Connectivity

Voice

Media

Converged

IP-Enabled Voice

20052002

IP-VPNthe foundation layer

IP-VPNthe foundation layer

VoIP VoIP

Hybrid voice data architecturesHybrid voice data architectures

IP videoconferencing to the desktop

IP videoconferencing to the desktop

Typically greenfield deployments before brownfield

Instant messagingInstant messaging Unified communications (including location-based

services)

Unified communications (including location-based

services)

Customer self-service for conferencing services Distance collaboration using data (e.g. slides)


IP buyer priorities currently do not reflect end-user needs for simplicity in the workplace

Comparison of IT Buyer and End-User Needs

Ease of Use

Multi-accessa

Speed

High

Low

Low High

“Pull” Opportunity for Service Providers

Current Service Provider Focus

Cost

Migration

Manageability

Reliability

Quality

Mobility

End-User Priority Needs

IT Buyer Priority Needs

a. Ability to access over multiple devices.


The benefits of IP technology have emerged from both its network layer capabilities and higher layer protocols

77

66

55

44

33

LayerLayer

ApplicationApplication

PresentationPresentation

SessionSession

TransportTransport

NetworkNetwork

APPSAPPS

TCPTCP

TCP/IP Protocol Suite

IPIP

OSI Reference Model

Benefits Associated with IP

Employs Open Standards

Led to accelerated development of new applications

AccessibleConnected all networks, regardless of operating system (also known as interoperability)

IntuitiveUse of Uniform Resource Locator (URL) or www.xxx.com allows access without number

Universal Uses comprehensive addressing system (Domain Naming System - DNS)

Ease of UsePoint-and-click and click-through (hypertext mark-up language) for applications; browsers (Graphical User Interfaces or GUI) for surfing

Efficient

Stateless: network remains dumb, unaware of rest of network; applications/devices are intelligent

Connectionless: disperses and reassembles packets using only resources required

22 Data LinkData Link

11 PhysicalPhysical



VoiceVoice

VideoVideo

Net accessNet access

E-mailE-mail

Transactional & Messaging

Apps

Transactional & Messaging

Apps

“Traditional”“Traditional” IPIP

IP dominates the ‘store/forward’ data worldThe question remains: when it will conquer the ‘real time’ world of voice and video

MantraMantra

• IP dominates the LAN

• IP is the ultimate mediation layer between application and infrastructure

• IP internetworking is the most cost effective and universal way to scale a multi-service network

Therefore IP is the fundamental connectivity protocol of the future

• IP dominates the LAN

• IP is the ultimate mediation layer between application and infrastructure

• IP internetworking is the most cost effective and universal way to scale a multi-service network

Therefore IP is the fundamental connectivity protocol of the future

Mantra vs. Current Position

Migration & QoS Issuesa

Is IP really going to live up to its billing as the “unstoppable internetworking protocol”?

Is IP really going to live up to its billing as the “unstoppable internetworking protocol”?

?

?



However, IP’s promise of better, cheaper and simpler services has not been fulfilled

Not BetterNot Better

• Of 50 companies interviewed, 30 cited quality and reliability as reasons for not using VoIP:a

– The benefits of VoIP are hard to justify while Quality of Service issues are not yet resolved

• 93% of IT Managers state security as a key barrier to deploying IP-VPNSb

• Of 50 companies interviewed, 30 cited quality and reliability as reasons for not using VoIP:a

– The benefits of VoIP are hard to justify while Quality of Service issues are not yet resolved

• 93% of IT Managers state security as a key barrier to deploying IP-VPNSb

Not CheaperNot Cheaper

• Equipment costs still high, payback uncertain:

– IP phones too expensive

– No cost savings until $100 each

– Traditional PBX cost is also lower when counting implementation costs for a new IP PBX

– IP PBX estimated 5-year payback may be too long

• Falling PSTN prices, have eroded VoIP’s price advantage– Sometimes referred to as Toll-bypass

• Equipment costs still high, payback uncertain:

– IP phones too expensive

– No cost savings until $100 each

– Traditional PBX cost is also lower when counting implementation costs for a new IP PBX

– IP PBX estimated 5-year payback may be too long

• Falling PSTN prices, have eroded VoIP’s price advantage– Sometimes referred to as Toll-bypass

Not SimplerNot Simpler

• Can be more complex: 60% of IT managers said ease of use/management issues were barrier to IP-VPN deploymentc

• Migration to new IP services has often resulted in requirement to operate simultaneous systems.

• Issues of inter-operability, billing and customer service have also emerged for service providers

• Can be more complex: 60% of IT managers said ease of use/management issues were barrier to IP-VPN deploymentc

• Migration to new IP services has often resulted in requirement to operate simultaneous systems.

• Issues of inter-operability, billing and customer service have also emerged for service providers

a. See IDC, “Attitudes towards IP Telephony in European Corporations”, October 2001. b. Internet Week Research, VPN usage survey based in US users (multiple responses accepted). c. Forrester, “Surviving A Metro Bandwidth Crunch”, December 2001.



Transport ArchitectureTransport Architecture Technical ImplicationsTechnical Implications Winning VendorsWinning Vendors

Circuit switching dominates at the core, with packet-based IP networks becoming prevalent at the edge . . .

CoreCore

• Dynamic Circuit Switching:

• IP playing a secondary, supporting role, for Internet access

• Dynamic Circuit Switching:

• IP playing a secondary, supporting role, for Internet access

• QoS is free!• QoS is free! • Vendors with dynamic circuit switching offerings:– Next-gen Sonet, not Mesh

– Reconfigurable networks

• Vendors with dynamic circuit switching offerings:– Next-gen Sonet, not Mesh

– Reconfigurable networks

EdgeEdge

• Mix of packet and circuit- switched, using multi-service edge equipment:– Driven by customer demand

– Packet interface to access and circuit interface to core

• Mix of packet and circuit- switched, using multi-service edge equipment:– Driven by customer demand

– Packet interface to access and circuit interface to core

• QoS statically managed:– CoS on packet interface to

access

– Topologically optimised for Internet access

– Ditto on circuit interface to core

• QoS statically managed:– CoS on packet interface to

access

– Topologically optimised for Internet access

– Ditto on circuit interface to core

• Strong multi-service edge offerings based on packet-switching architectures:– Key features are switched

routing, and edge optical nodes

• Strong multi-service edge offerings based on packet-switching architectures:– Key features are switched

routing, and edge optical nodes

AccessAccess

• Packet-switched networks will dominate intranets over the medium term:

– IP, over time, will dominate corporate LANs and WANs

• Packet-switched networks will dominate intranets over the medium term:

– IP, over time, will dominate corporate LANs and WANs

• QoS actively managed:– Real-time monitoring,

measuring and reconfiguring

– Without breaking the basic stateless/connection-less paradigms of IP

• QoS actively managed:– Real-time monitoring,

measuring and reconfiguring

– Without breaking the basic stateless/connection-less paradigms of IP

• Corporate IP vendors, and access/LAN IP QoS management vendors:– Dynamic, policy-based QoS

based on business objectives

• Corporate IP vendors, and access/LAN IP QoS management vendors:– Dynamic, policy-based QoS

based on business objectives


Recent Academic Research is coming to the same conclusions

• From a paper presented at Hotnes, Princeton, October 2002: “Is IP going to take over the world (of communications)?”– Pablo MolineroFernandez, Nick McKeown, Stanford University; Hui Zhang, Turin Networks and Carnegie

Mellon University• "It remains ill suited as a means to provide many other types of service; and is too crude to form the transport

infrastructure in its own right."

• "The growth and success of IP has given rise to some widely held assumptions amongst researchers, the networking industry and the public at large. One common assumption is that it is only a matter of time before IP becomes the sole global communication infrastructure, dwarfing and eventu ally displacing existing communication infrastructures such as telephone, cable and TV networks."

• "But for all its strengths, we (the authors) do not believe that IP will displace existing networks; in fact, we believe that many of the assumptions discussed above are not supported by reality, and do not stand up to close scrutiny."

• "It is the goal of this paper to question the assumption that IP will be the network of the future. We will conclude that if we started over - with a clean slate - it is not clear that we would argue for a universal, packet-switched IP network."

• "We take the position that while IP will be the network layer of choice for best-effort, non-mission critical and non-real time data communications (such as information exchange and retrieval), it will live alongside other networks, such as circuit-switched networks, that are optimized for high revenue time-sensitive applications that demand timely delivery of data and guaranteed availability of service."

• "At the core of the network, we expect the circuit switched transport network to remain as a means to interconnect the packet switched routers, and as a means to provide high reliability, and performance guarantees. Over time, more and more optical technology will be introduced into the transport network, leading to capacities that electronic routers cannot achieve."


. . . But IP will dominate the market for smaller enterprise networks

• Small IP networks (such as Corporate LANs and WANs) are cheaper and simpler to operate than small circuit-switched networks:– Enterprise packet-switching is considerably simpler and cheaper to manage.

– The number of components in an all IP corporate LAN can be significantly smaller than a circuit- switched infrastructure with N^2 characteristics, especially in highly interactive corporates like banks, the pharmaceutical sectors, large engineering firms, and the military.

– The power/density/operational complexity characteristics of IP infrastructures in a core network. [NOT CLEAR]

• QoS solutions for corporate LANs and WANs are becoming more manageable with the advent of policy-based management technologies:– Both from a hardware/software and operational perspective.

• Service providers will also need to maintain packet-switched architectures to enable Internet access and other services:– E.g. managed services, such as storage and hosting, where most corporate interfaces will be IP.

– E.g. multi-party services, such as audio, video, and web-enabled conferencing, due to the N-squared complexities associated with trying to provide these services efficiently off a circuit-switched infrastructure.

From our conversations with buyers, systems integrators, and service providers, we are convinced the future of enterprise LANs and WANs will be all IP.

From our conversations with buyers, systems integrators, and service providers, we are convinced the future of enterprise LANs and WANs will be all IP.


Review of Key IP Services Technologies and Identification of Potential Winners

• What are the drivers and inhibitors of VoIP uptake ?

• What other value-added services might VoIP enable service providers to offer?

• What does the voice migration architecture look like ?

• Who are the potential winners in the Voice over IP arena?

• What is the outlook for VoIP in the short term?

• What are the drivers and inhibitors of VoIP uptake ?

• What other value-added services might VoIP enable service providers to offer?

• What does the voice migration architecture look like ?

• Who are the potential winners in the Voice over IP arena?

• What is the outlook for VoIP in the short term?

IP VPN

Voice over IP

Video over IP

Unified Communications

Quality of Service

IP Storage


VoIP currently has some inherent challenges, particularly in the areas of QoS and cost

Source: CGEY and DrKW Analysis

• Low cost and efficiency of legacy PSTN equipment weakens the business case for migration to VoIP

• Tolerance for medium quality video is high but tolerance for even mildly reduced voice quality is very low

• Replacing a TDM switching fabric with routers is not likely to deliver enhanced performance

• PBX depreciation cycles are quite long and delay VoIP adoption

• MGCP (in cable) vs SIP XML (Telcos and mobile operators) debate is making interoperability more difficult for all vendors

Inhibitors to VoIP


Why QoS matters The example of Voice, a delay sensitive application where users tolerate minimal drop in quality

Anatomy of a Simple Voice Call

Delay

Coder Delay G.729 (5msec look ahead)

Coder delay G.729 (10msec per frame)

Queuing delay and Network Buffer delay

Propagation Delay (private lines)

Dejitter Buffer 50 msec

0 msec ?

5 msec

20 msec

Total 75 msec + ??

Site A Phone

Site B Phone

Coder Delay

Queuing Delay

Buffer 1 Delay

Buffer 2 Delay

Dejitter BufferFirst

MileNetwork Last

MileQueuing Delay

??

Voice can tolerate only 100 msec; margin for error

is small

Voice can tolerate only 100 msec; margin for error

is small



However, there are significant advantages for service providers from hybrid trunk side architectures

Advantages for Service Providers

Internet offloadInternet offload Intercept dial-up calls handled by the IP infrastructure avoid clogging up Class-5 and Class-4 switchesIntercept dial-up calls handled by the IP infrastructure avoid clogging up Class-5 and Class-4 switches

Improve mesh performance

Improve mesh performance

Operational savingsOperational savings

Deliver new hybrid applications

Deliver new hybrid applications

Adding switching capacity has decreasing advantages as more ports get allocated to interconnect with other elements of the mesh rather than to handle new calls

Adding switching capacity has decreasing advantages as more ports get allocated to interconnect with other elements of the mesh rather than to handle new calls

By using, for example, an ATM cloud for the interconnect service providers can greatly reduce the number of trunks they need to manageBy using, for example, an ATM cloud for the interconnect service providers can greatly reduce the number of trunks they need to manage

Many of the applications that mix voice and data, which generally involve SIP manipulations, require IP anyway to interact with intelligent clientsMany of the applications that mix voice and data, which generally involve SIP manipulations, require IP anyway to interact with intelligent clients



The necessity to deliver new advanced voice services is driving developments in network architecture


Customer DemandCustomer Demand

• Economic advantages of packet voice are driving access voice networks from circuit to packet switching

• Corporate demand for:– Unassisted,on-demand, reservation-less conferencing

services

– Unified messaging

– Call centres

• Obligation to deliver local number portability, emergency and directory services

• Web-based invitation, notification, scheduling and device control

• Unified network to allow unified and simplified management

• Economic advantages of packet voice are driving access voice networks from circuit to packet switching

• Corporate demand for:– Unassisted,on-demand, reservation-less conferencing

services

– Unified messaging

– Call centres

• Obligation to deliver local number portability, emergency and directory services

• Web-based invitation, notification, scheduling and device control

• Unified network to allow unified and simplified management

New ArchitectureNew Architecture

• Interoperable technology is finally becoming available to enable VoIP over LANs and increasingly WANs– PBX interoperability is improving in brownfields

• In next-generation carrier networks:– Voice traffic between traditional voice networks and new packet-

based networks will be directed by media gateways and media gateway controllers, which will be handled by soft-switches

• There are two key concepts behind these new networks:– Media gateways, signalling gateways, media gateway controllers

and application servers will be divided into separate logical network components

– These components will communicate with one another through the use of intra-switch protocols such as Media Gateway Control (MEGACO), Media Gateway Control Protocol (MGCP), SCTP/M3UA and Session Initiation Protocol (SIP)

• Interoperable technology is finally becoming available to enable VoIP over LANs and increasingly WANs– PBX interoperability is improving in brownfields

• In next-generation carrier networks:– Voice traffic between traditional voice networks and new packet-

based networks will be directed by media gateways and media gateway controllers, which will be handled by soft-switches

• There are two key concepts behind these new networks:– Media gateways, signalling gateways, media gateway controllers

and application servers will be divided into separate logical network components

– These components will communicate with one another through the use of intra-switch protocols such as Media Gateway Control (MEGACO), Media Gateway Control Protocol (MGCP), SCTP/M3UA and Session Initiation Protocol (SIP)

VoIP today is more a question of delivering a suite of hybrid voice/data services than replacing TDM networks.

VoIP today is more a question of delivering a suite of hybrid voice/data services than replacing TDM networks.


VoIP is not interesting in itself, but explosive growth in IP Services will come from services it enables

Call centersCall centers

VoIP ToolBox

ConferencingConferencing

Unified MessagingUnified Messaging

Huge addressable market further enabled by speech technologies for total customer contact and reduced operational costs.

Huge addressable market further enabled by speech technologies for total customer contact and reduced operational costs.

A market experiencing explosive growth at present and that tops the agenda of vendors and users alike

A market experiencing explosive growth at present and that tops the agenda of vendors and users alike

A medium term winner delivering clear user experience and connectivity improvements

A medium term winner delivering clear user experience and connectivity improvements


IP Centrex

• Centrex (central office exchange service) is a service from local telephone companies in which up-to-date telephone facilities at the service provider’s central office are offered to business users who do not wish to purchase their own facilities.

• The Centrex service consists of allocating centralized capabilities among different business customers. The customer is spared the expense of having to keep up with fast-moving technology changes (for example, having to continually update their private branchexchange infrastructure) and the phone company has a new set of services to bill for.

• According to statistics compiled by RHK, the Centrex service is most popular with small to mid-sized companies with up to 400 lines. However, customers with over 1,000 lines represent over 20% of the existing Centrex base.

• These larger customers have been increasingly investing in their own infrastructure, as suggested by the following data showing erosion of 8% per year from 1996 to 2001. The rate of decline is expected to increase to 12% per year from 2001 to 2005.

• Meanwhile, smaller customers are expected to show only modest growth in the adoption of Centrex. Another source of risk with Centrex customers is that as they switch from outsourcing to owning their own facilities, service providers risk losing other precious sources of revenue such as Web hosting, VPN offerings and Unified Communications. According to Lucent, such losses could add up to $750,000 per customer per week, or approximately $39 m per year.

Source: Ariane Mahler, CGEY and DrKW Analysis


IssueIssue SolutionSolution WinnersWinners

Complexity ManagementComplexity Management Elegantly bridging voice and packet networks

Elegantly bridging voice and packet networks

Integrated bearing/ signalling/control box

Integrated bearing/ signalling/control box

TelicaTelica

Device ProliferationDevice Proliferation Deliver QoS sensitive services with limited knowledge of endpoint

Deliver QoS sensitive services with limited knowledge of endpoint

Converged SIP based application delivery platform

Converged SIP based application delivery platform

DynamicsoftDynamicsoft

Interoperability, multi-vendor solutionsInteroperability, multi-vendor solutions

No appetite for forklift upgradesNo appetite for forklift upgrades Gradual migration in softwsitch architecture in multiprotocol world

Gradual migration in softwsitch architecture in multiprotocol world

Veraz networksVeraz networks

Integrating voice with other real-time apps

Integrating voice with other real-time apps

Multi-channel interface for application delivery

Multi-channel interface for application delivery

Iperia, Voyant, AspectIperia, Voyant, Aspect

Source: CGE&Y and DrKW Analysis.

Product InnovationProduct Innovation Scale packet based voice servicesScale packet based voice services Separate voice processing from application logic

Separate voice processing from application logic

IP Unity (media server) Sylantro, Pactolus (apps server)

IP Unity (media server) Sylantro, Pactolus (apps server)

Process InnovationProcess InnovationEnd-to-end solutions absentEnd-to-end solutions absent Control the value chain from the

user interface upControl the value chain from the user interface up

AvayaAvaya

We have identified the potential winners in the VoIP space...


… and created a market map of the next generation VoIP players

SoftswitchesIP Devices

CiscoAvayaAscomMitelPolycomCongruencye-TelEricssonTelstratTundoNortelToshibaAlcatelSamsung

SonusSyndeoCommworksTaquaipVerseConvergent NetworksCisco (IP Cell)MockingbirdTekelecNueraUnisphereGallery IPT

AlcatelNortelLucentTelcordia

Application Servers

DynamicsoftTelephony@WorkSylantroPactolus

Media Servers

IP UnityConvedia

Gateways

SonusSyndeoCommworksTaquaipVerseConvergent NetworksCisco (IP Cell)MockingbirdTekelecNueraUnisphereGallery IPT

AlcatelNortelLucentTelcordia



100% VoIP for core voice transport is many years into the future

• IP is not the optimal technology for scaling a voice business:– QoS slippage is not an option

– Legacy infrastructure is cheap and very efficient

• The transition to VoIP will be slow as each new service introduced must be value accretive and protect the value of legacy networks

• Work on VoIP has led to developments in technology that enable delivery of real time services e.g. call centre automation and conferencing

• The market take-up of these services depends on the design, pricing and bundling of attractive end-user applications:– It is up to the carriers to design and deliver IP-enabled differentiated services that leverage existing TDM networks …

without falling back into a minutes / bits price war


Conclusions on VoIP

The near-term significance of VoIP is in the real-time IP Services that it enables.The near-term significance of VoIP is in the real-time IP Services that it enables.


While IP technology promises a lot, success depends on improved QoS and IP-VPN users reaching critical mass

Key Findings—TechnologyKey Findings—Technology What It MeansWhat It Means

• Most IP services have crossed the “Operational Chasm”—they work!

• Proliferating technologies, standards, and devices have not yet given way to more integrated solutions

• IP-VPN and voice/video over IP may enhance the next wave of services

• QoS to deliver real-time IP is emerging, but selectively and slowly

• “IP everywhere” is neither always required nor always desirable

• Costs of managing IP complexity may exceed many IP benefits:

– Too many ROI case studies fail to consider “hidden costs" of complexities

– Additional software/hardware/”wetware” (blood, sweat and tears) needed as device numbers increase.

– Tasks such as “coupling" and "amplification" are proving difficult in large-scale networks.

• Most IP services have crossed the “Operational Chasm”—they work!

• Proliferating technologies, standards, and devices have not yet given way to more integrated solutions

• IP-VPN and voice/video over IP may enhance the next wave of services

• QoS to deliver real-time IP is emerging, but selectively and slowly

• “IP everywhere” is neither always required nor always desirable

• Costs of managing IP complexity may exceed many IP benefits:

– Too many ROI case studies fail to consider “hidden costs" of complexities

– Additional software/hardware/”wetware” (blood, sweat and tears) needed as device numbers increase.

– Tasks such as “coupling" and "amplification" are proving difficult in large-scale networks.

• QoS-driven IP services can evolve only where QoS issues resolved; not everywhere at once!

• IP services with QoS work best in autonomous networks e.g. in the LAN or the service provider’s own core IP network

• Corporate IP-VPN (not the internet) becomes the foundation and enabler for all other IP services

• Massive technology disruptions are unlikely

• QoS-driven IP services can evolve only where QoS issues resolved; not everywhere at once!

• IP services with QoS work best in autonomous networks e.g. in the LAN or the service provider’s own core IP network

• Corporate IP-VPN (not the internet) becomes the foundation and enabler for all other IP services

• Massive technology disruptions are unlikely

Key Technology ChallengesKey Technology Challenges

• Extend QoS across the WAN to include all brownfield and greenfield sites; becomes the basis for other services

• Enhance legacy voice services with IP interactivity: – For customer-activated conferencing, internal line provisioning, integrated

communications interface, and other additional functionalities

• Make corporate applications fully available to remote users and key external parties

• Delivering IPv6 and end-to-end QoS across the internet cloud look to be many years away

• Extend QoS across the WAN to include all brownfield and greenfield sites; becomes the basis for other services

• Enhance legacy voice services with IP interactivity: – For customer-activated conferencing, internal line provisioning, integrated

communications interface, and other additional functionalities

• Make corporate applications fully available to remote users and key external parties

• Delivering IPv6 and end-to-end QoS across the internet cloud look to be many years away


The future of real-time IP Services depends on successfully developing and deploying emerging QoS tools

Over-provisioningOver-provisioning

• Common over-provisioning is for typical bandwidth utilisation

• QoS over-provisioning is for peak utilisation

• May raise questions of affordability

• Common over-provisioning is for typical bandwidth utilisation

• QoS over-provisioning is for peak utilisation

• May raise questions of affordability

Guaranteed bandwidth allocations or resource

reservation

Guaranteed bandwidth allocations or resource

reservation

Traffic managementTraffic management

Application-driven QoSApplication-driven QoS

QoS Solution/Method Tools

• Make sure preferred “bursty” bandwidth is available to QoS-sensitive applications

• Determine preferred paths in network

• Make sure preferred “bursty” bandwidth is available to QoS-sensitive applications

• Determine preferred paths in network

• Admission control

• Data management: packet prioritisation, policing and shaping

• Compression

• Admission control

• Data management: packet prioritisation, policing and shaping

• Compression

• Prioritise by application, not packet type or port

• Measure and police network traffic in real time

• Content management & caching

• Prioritise by application, not packet type or port

• Measure and police network traffic in real time

• Content management & caching

• Increased edge/access infrastructure (servers, switches, routers and gateways)

• Increased edge/access infrastructure (servers, switches, routers and gateways)

• Implement circuit-switching with ATM

• Implement connection-oriented IP with MPLS

• Signalled resource reservation with RSVP

• Implement circuit-switching with ATM

• Implement connection-oriented IP with MPLS

• Signalled resource reservation with RSVP

• Provision-class packet marking with DiffServ

• Standardised shaping/queue reordering/etc.

• IPv6

• Provision-class packet marking with DiffServ

• Standardised shaping/queue reordering/etc.

• IPv6

• Implement centrally controlled traffic-management tools and drive policies down to network elements in the LAN

• Multicast & content-aware networking

• Implement centrally controlled traffic-management tools and drive policies down to network elements in the LAN

• Multicast & content-aware networking

Description

Delivering quality is an inter-domain traffic engineering problem encountered at both the interface of the WAN and LAN and between service provider networks.

Delivering quality is an inter-domain traffic engineering problem encountered at both the interface of the WAN and LAN and between service provider networks.


The IP services market is in its infancy, but it is increasingly recognised as the industry’s best hope for growth

• No winners in next 24 months, only survivors.

• IP services will grow steadily over the next two years (possibly 10%).

• QoS has yet to be fully resolved: Be suspicious of any hype.

• TDM voice networks will not disappear into some converged Nirvana; they work!

• “Converged networks” more likely means hybrid networks with IP enhancements, not fully converged IP networks.

• Service providers and vendors are still not speaking end-user benefits.

© 2002 dresdner kleinwort wassertstein and cap gemini ernst & young - all rights reserved | 1 |...

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