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the basis of trends in the first half of 2001, international VoIP traffic is likely to reach 10 billion minutes in the current year, equivalent to 6 percent of the world s projected traffic in 2001.7 The introduction of the VoIP gateway switch, a component of the softswitch solution and a stepping stone to softswitch architecture, marked the introduction of a destabilizing technology in the international longdistance market. Technology-wise, the VoIP gateway competed directly with the Class 4 switch. Its technology was deficient as compared to the Class 4 in the international market, but given its other advantages some, but not all, operators could overlook those deficiencies. For international longdistance bypass operators, the advantages of being cheaper (in purchase price and Operations, Administration, Maintenance, and Provisioning [OAM&P]), smaller (easily deployed anywhere in the world), and more convenient for the bypass operators outweighed any deficiencies (quality of service [QoS], small scalability, reliability, and a lack of features). Given a lower cost of long-distance rates, their customers were willing to accept lower QoS. Given the higher margins, the service providers were willing to offer lower QoS. Meanwhile, incumbent service providers lost market share and were forced to cut their prices to compete with the VoIP service providers. Softswitch technology (a direct evolution from the VoIP gateway) poses the same scenario in the North American converging long-distance market. To apply the comparison of VoIP gateways in the long-distance bypass markets to softswitch in the North American converging markets, it s important to determine if the advantages of softswitch outweigh those of Class 4.
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Softswitch techologies, simply put, are cheaper than circuit switches both in purchase price and in terms of OAM&P. This lowers the barriers to entry to new market entrants, which is critical for competition to enter the local loop market place. The following pages will delve into the cost factors of a voice service provider and how softswitch is the more cost-effective option.
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7 TeleGeography, Inc. TeleGeography 2002 Global Traffic Statistics and Commentary. www.TeleGeography.com, 2001.
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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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Softswitch is cheaper than Class 4 in purchase cost and OAM&P. The net present value models later in this chapter provide concrete comparisons of Class 4 switches versus softswitch in terms of purchase price and OAM&P. It is estimated that a service provider s largest cost is the ongoing expense of running the network and the switches themselves. Networks must be deployed, maintained, repaired, monitored, and upgraded. The Aberdeen Group has found that competitive carriers spend 60 to 70 percent of their overall expenses on OAM&P. The ability to manage the entire network via a softswitch solution (including adding and altering specific customer services, upgrading capacity, and fixing faults) from a centralized location leads to considerable time and cost savings.8 Packet-technologybased long-distance carriers maintain that their service provider customers will be able to offer voice services at 20 percent off the traditional rates and they claim the underlying infrastructure can be 40 percent less expensive to operate.9
Figure 11-1 Projections for softswitch return on investment (ROI) (Source: Frost & Sullivan)
Service Provider Return on Softswitch Investment (In $ Millions)
90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000 2001 2002 2003 2004 2005 2006 S oftswitc h Cost S ervic es Revenues
Aberdeen Group, Inc. Building a Next-Generation Voice Network. February, 2001. www. bitpipe.com.
9 Krapf, Eric. VoIP Services Emerging. Business Communications Review, January, 2000, p. 17. www.bcr.com/bcrmag/2000/01/p17.asp.
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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