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Is Softswitch Deconstructive, Disruptive, or Both
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deploy infrastructure to provide those services. This would be a boon for softswitch and the argument in favor of it over Class 4 switches. In addition to being less expensive to acquire and operate, softswitch has the potential to generate more high-margin features than Class 4. Softswitch can transmit all the same features that Class 4 does. Open standards that enable expanded interfaces with applications hosted on an application server expand the number of features a softswitch-enabled service provider can offer. This allows that service provider to differentiate themselves from other carriers, especially Class-4-enabled service providers who physically cannot deliver the same services. Net present analyses in 5, SIP: Alternative Softswitch Architecture show that where all other things are equal and the softswitchenabled carrier is generating 25 percent more revenue than they would with a Class 4, the net present value is about 25 percent higher than it would be if the carrier were using a Class 4 that could not generate the 25 percent higher revenue due to the Class 4 s incapability to offer the additional revenue-generating features. If more carriers select softswitch over Class 4 for this reason, Class 4 vendors will lose sales and be disrupted. Long-distance service providers that haul their traffic via IP are exempt from access fees and levies for the Universal Service Fund. Although VoIP can be delivered via an appropriately equipped Class 4, service providers seeking an all-IP solution for maximum efficiency will select softswitch over Class 4. Service providers will deploy softswitch solutions to take advantage of avoiding these costs. If the FCC were to reverse itself, this advantage for IP telephony and softswitch would disappear. Enterprise VoIP is growing in popularity. Many businesses seek to reduce or eliminate their long-distance costs. One way to do so is to route their interoffice long distance over their corporate WAN. This is traffic that formerly was routed via a mainstream long-distance carrier using Class 4. Assuming this trend continues, Class 4 in the form of a long-distance carrier using Class 4 is disrupted. In the aftermath of the attack on the World Trade Center, corporate subscribers will demand greater security for their voice services. The World Trade Center and buildings around them contained both Class 4 and Class 5 switches. The destruction of those towers left hundreds of thousands of business subscribers without service for weeks. One possible alternative is to route corporate interoffice traffic over the corporate WAN, so that in the event of the destruction of the local central office, it is possible to have backup telephone service via the corporate WAN. VoIP presents both a disruptive threat and a potential opportunity for traditional IXCs who provide advanced telecommunications services to
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Downloaded from Digital Engineering Library @ McGraw-Hill (www.digitalengineeringlibrary.com) Copyright 2004 The McGraw-Hill Companies. All rights reserved. Any use is subject to the Terms of Use as given at the website.
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businesses. If an IP network can replicate the network services, new Internet telephony service providers (ITSPs) could provide IP-based services such as call center management and voice virtual private networks (voice VPNs) that would threaten traditional IXC s high-margin service offerings. These offerings would leverage the inherent flexibility of an IP-based solution and would allow true one-stop shopping for businesses.5 Class 4 Not Disrupted by Softswitch Just as evidence supports the thesis that softswitch disrupts Class 4, an argument can be made that softswitch is not disruptive to Class 4. The greatest threat to this claim has little to do with the technical differences of softswitch over Class 4. The greatest threat to this argument is that mainstream vendors of Class 4 who also offer a softswitch product and sell largely to mainstream carriers will discontinue their Class 4 products and sell their softswitch solutions to mainstream service providers. In this scenario, no Class 4 vendor or incumbent long-distance service provider is disrupted. In this case, softswitch becomes a sustaining technology. Another potential argument is that softswitch is the client/server version of a Class 4 switch that is based on mainframe technology. In this case, softswitch could be considered a sustaining technology, providing no member of the value network is disrupted. Mindful of lost sales to softswitch, mainstream (Class 4) vendors may slash the purchase price of Class 4 switches to either match or beat softswitch. Some vendors are reportedly selling switches for $50 per DS0 in some Asian markets. This potentially negates the low purchase price advantage of softswitch. If Class 4 vendors follow this strategy, then the same conditions that apply to softswitch as regards a lower barrier to entry and exit will apply to Class 4 and that advantage is lost to softswitch. Net present value analyses do not strongly support long-term financial advantages of softswitch over Class 4. Service providers will not invest in this unproven technology when it shows only a three percent advantage in the net present value over Class 4. Class 4 has 25 years of experience in the long-distance market. Incumbent carriers may take a wait-and-see attitude toward the new technology. Carriers that offer phone-to-phone IP telephony are exempt from paying access fees or paying into the Universal Service Fund. For this argument, both the softswitch and Class 4 service providers enjoyed this advantage
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Christensen, Clayton, Scott Anthony, and Erik Roth. Innovation in the Telecommunications Industry Separating Hype From Reality. A working paper from the Harvard Business School, October 2001.
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