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success in the market In addition, the packet portion of VoP, as noted, has very little to do with the bandwidth saving itself that credit must go to the vocoding technology Compression could be accomplished without packetization of any kind (such as IP, ATM, Frame Relay, or MPLS) In a greenfield environment, the planner might look at deploying a VoP architecture rather than a traditional Class 5 switch for transmission sav-
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Motivations, Developments, and Opportunities in VoP
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ings and switch cost reduction when small to medium switches are needed13 In existing environments, however, the advantages of VoP have to be secured through new applications, not technical niceties or the elegance of a new architecture The competitive pendulum has shifted, at least in the short term, against the formation of new greenfield carriers such as Competitive Local Exchange Carriers (CLECs), Digital Subscriber Line LECs (DLECs), Radio LECs (RLECs), Ethernet LECs (ELECs), and Building LECs (BLECs) According to various well-respected sources, voice traffic is 35 percent of the total bandwidth, while data traffic is 65 percent of the total bandwidth (partitioned as 30 percent corporate and 35 percent Internet)14 The revenue picture, however, is as follows: Voice is 83 percent and data is 17 percent (The data revenue figure is partitioned as 12 percent corporate and 5 percent Internet) The challenge for IP planners is how to bring revenue and profitability to the IP network, whether it is the intranet or the Internet VoP is seen as an opportunity toward this goal However, time-division multiplexing (TDM) trunk replacement with statistical TDM (STDM) trunks does little to change this revenue picture Proponents articulate strong advocacy for the VoIP/VoP technology, as illustrated in Figure 1-3, which represents a typical viewgraph of a technology developer (shown anonymously) Although new carriers in Asia and elsewhere may in fact utilize VoP/softswitch technology, this is not yet the case to any significant extent in North America15 Nonetheless, some market penetration has been achieved by VoIP/VoP in the early 2000s Figure 1-4 depicts, from various sources, the number of yearly minutes of use for VoIP/VoP over time worldwide As points of reference, there were around 105 billion minutes of international Public Switched Telephone Network
Figure 1-3 Typical readout from technology vendors
This Is Now
Carrier-class packet voice solutions shipping for 2+ years High levels of reliability, scalability, performance Major carriers deploying packet voice Full range of carrier applications An unstoppable transition
Minutes of Use (B)
650 Circuit Switched Minutes Circuit Switched Substitution
VoP $275 B
minutes (B)
1,400 1,200 1,000 Circuit Switched + VoIP Minutes 600 400 200 0 '00 '01 '02 '03 Year '99 '00 '01 '02 '03 '04 Year '04 '05 '06 Demand Stimulation Enhanced Applications 800 Global FIgures
VoP Industry Background Market Forecast
As a result of industry and technology evolution, VoP (specifically VoIP) minutes will grow significantly over the next 3 5 years
US figures
Figure 1-4 Market for VoIP/VoP Source: FCC history, industry forecasts, Dean & Company analysis, AT&T, Probe Research Next-Generation Networks, November 2001
Motivations, Developments, and Opportunities in VoP
(PSTN) traffic in 1999 (mainly voice and fax) and around 5 trillion minutes of total PSTN traffic (according to ITU sources) In 1999, only 06 percent of the total voice traffic was on VoP (according to Probe Research Corporation sources) IDC forecasts that web talk revenues will reach $165 billion by 2004 with 135 billion minutes of traffic16 The Gartner Group forecasts that VoIP and competition in Europe will reduce prices by 75 percent by 2002 IP telephony as a percentage of all international calls in 2004 will be 40 percent according to Tarifica and 25 percent according to Analysys In developing countries, the majority of IP telephony calls are incoming according to IDC17 The geography of IP needs to be taken into account when considering VoP in general and VoMPLS in particular Investment in IP networks is still highly centered in the United States More than 95 percent of interregional IP bandwidth connectivity is to/from North America Europe is catching up because of their major investment in fiber-based networks since opening up European markets in the late 1990s The Asia-Pacific region is still lagging behind Figure 1-5 shows the calculated (worldwide) revenue figures for VoIP/VoP services A $4 billion global market is predicted for 2004 and a $8 to $12 billion market is predicted for 2006 (These figures are approximate, but give an order of magnitude sense of the market) Figure 1-6 assesses the potential capital expenditure (capex) market for VoIP/VoP hardware and software by looking at the number of comparablesized switches that are needed to support the minutes of demand of Figure 1-4 Depending on the fill, you would need the equivalent of 56 to 222 switches in 2003 and 347 to 1,389 in 2006 Assuming an equivalent cost of $25 million per switch, the switch revenues could be $056 billion in 2003 and $347 billion in 2006 (assuming a 25 percent fill) It is useful to note that the ratio of revenue dollars to capex dollars is around 3 namely, for every $1 invested in equipment, $3 are generated annually in revenues This is a figure of merit and a level that planners and financiers (capital markets) like to focus on IP people hear themselves talking when they say that IP and Ethernet are easy However, if the Incumbent LECs (ILECs) and Interexchange Carriers (IXCs) have half a million people that are not up on the latest BGP, BLPA, CBWFQ, CCAMP, CR-LPD, DIS, DPT, DSCP, DS-TE, ECMF, FIB, GSMP, IGMP, IPORPR, L2TP, LIB, LMP, LPM, LSA, MBGP, MGCP, MSDP, OSPF, PHB, PHP, PTOMAINE, RED, RTCP, SCTP, SRP, TOS, UTI, or VSC, what is the point What would motivate the incumbents to retrain half a million people to put out the same product the next day 18 The metric system might appeal to most people outside the United States as elegant, simple, and effective, but what is the cost of retooling an industry to metric just to manufacture the same goods with the same revenue the next day Such an effort was tried in the United States, but it was abandoned Therefore, carriers will not deploy only VoP because the technology is easy to those
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