Adapting to New Environments

Posted: 05/1999

Adapting to New Environments
New Switch Architectures Slash Market-Entry Cost, Blend Telephony and Data
By Steve Kelly

The local telephone service market is ripe with revenue potential. By some estimates, local phone calls represent a $92 billion opportunity in the United States. But finding a successful strategy for garnering a piece of that revenue pie has until now represented an economic and technical conundrum that has frustrated many potential competitive local exchange carriers (CLECs).

Since the Telecommunications Act of 1996 opened the door to local exchange competition, two of the choices new entrants have had to launch services include reselling existing phone services or building their own facilities. The first scenario has grown progressively less attractive, as the margins of the incumbent local exchange carriers (ILECs) already are so narrow that resale no longer offers much of a profit motive. The facilities-based alternative, on the other hand, has often proven cost-prohibitive because of the multimillion-dollar price of the Class 5 switching equipment that carries the lion's share of today's phone calls.

The technology landscape has proven to be equally challenging. Many different types of access protocols and transport mechanisms are hitting the scene, and "the CLEC will not be able to dictate the customer's interface of choice," notes Mike Smith, managing director at Stratecast Partners, a Philadelphia-based research firm.

This means that service providers must find a way to support customers who may not all be using plain old telephone service (POTS) equipment to make their phone calls.

An emerging product category of distributed phone switches that support a process called service mediation attempts to address these economic and technical challenges so that new players can succeed in this lucrative market. Service mediation alone will enable an estimated $50 billion in service revenues by 2010 in the United States, according to CIMI Corp., a Voorhees, N.J.-based network consulting firm.

A New Animal

Class 5 central office (CO) telephone switches, the underpinnings of today's mainstream phone service, connect and terminate calls. They also are home to sophisticated, intelligent software that delivers rich custom features, such as call forwarding, caller ID, voice mail, local phone portability and conference calling. They do so using standard signaling methods understood across different vendors' switch equipment. The most common method is signaling system 7 (SS7). Class 5 switches generally cost between $3 million and $5 million, and configuring them is not a trivial exercise.

Choosing to serve a single market and purchasing a single Class 5 switch as a provisioning platform is one thing. But consider the service provider that wishes to set up shop in more than one region. Having to make the multimillion-dollar switch investment for each market to be served has thwarted the strategies of some CLECs hoping to penetrate several second- and third-tier markets--and has left many customers without much competitive choice in local service providers.

The economic playing field is uneven largely because the former Bell monopoly enabled the ILECs to endure with captive audiences for a long time. Over the decades, the ILECs have been able to grow very large customer bases, achieve economies of scale and depreciate their equipment.

These factors give them an operational and economic advantage, observes Cathy Gadecki, a director at telecommunications consulting firm TeleChoice Inc., Owasso, Okla. She notes that CLECs can use the same technology and equipment as ILECs to provision services, but that deployment actually costs the CLECs more. This is because of a chicken-and-egg situation in which newer players lack a large enough customer base to provide a reasonable return on investment (ROI), but cannot afford the equipment that would enable them to grow a customer base large enough to help them achieve significant economies of scale.

Many Environments

On the technical side, many types of user interfaces and backbone transport technologies now exist. New local service providers must decide whether it makes sense to stick with a pure time-division multiplexing (TDM) architecture, based on connection-oriented circuit switching, and carry only analog or digital pulse code modulation (PCM) voice calls. With the rise of Internet protocol (IP) networks and other efficient packet-switched transport technologies for carrying integrated voice and data calls, that platform decision is no longer clear-cut.

Once packet traffic picks up, for example, a PCM-based provider eventually will need to terminate calls originating on IP networks. An accompanying requirement will be to maintain consistency in SS7 features as calls traverse PCM, IP and asynchronous transfer mode (ATM) networks. In addition, how does the network deal with new access protocols being used by the customer, such as cable modems, integrated services digital network (ISDN) and wireless modems? Providers also need to consider strategies for diverting dial-up Internet surfers away from expensive telephony ports.

In addition to the need for competition in vanilla local voice service, multimedia application trends are emerging, and some CLECs will want to participate in that market as well. Researchers at Mountain View, Calif.-based Frost & Sullivan and Framingham, Mass.-based International Data Corp. (IDC), for example, estimate that the voice opportunity across multiservice packet networks next year is somewhere between $6 billion and $12 billion.

To address convergence trends, a unifying platform that integrates the older public switched telephone network (PSTN) with newer packet-switching networks will be needed for many years to come while public networks are in transition. Providing traditional circuit-switched voice as an island may not be sufficient to compete very far into the future.

"The reality is that all of those worlds--the PSTN, IP and ATM--will continue to coexist, and it will be impossible for one to completely supplant the others. With this in mind, mediation becomes a critical requirement," Smith says.

Service mediation provides the glue that allows the delivery of phone calls and the extension of custom local area signaling services (CLASS), built around SS7 and other advanced intelligent network (AIN) standards, from the PSTN to packet-switching networks, such as IP and ATM networks. Service mediation platforms generally do this using an engine that translates access protocols into a common format that can connect to integrated directory services and policy databases. The engine then converts from the universal format to the format of the receiving network.

Translation must occur at the transport, signaling and network management layers. For example, a common management engine could plug into existing network management systems and interfaces to preserve investments in systems already in place and their corresponding skill sets.

Service mediation is housed in a new generation of distributed telephone switching and gateway equipment. The emerging platforms provide a new voice switching architecture in the form of distributed devices that extend much of the larger, centralized switches' functionality at more palatable price points. The idea is analogous to the client/server computing paradigm in the data-processing world, whereby deploying multiple, smaller computing platforms becomes more economical than mainframe-based processing.

The support of service mediation in these devices enables end-to-end communications regardless of the technology underlying any interconnected network services and user access choices. The devices generally sit on the outer edges of a service provider's network to provide translation at the network ingress and egress points--places where traffic enters and leaves the network. The devices allow the switching of local calls and Internet traffic, and, for piggybacking on custom calling features, can backhaul value-added services from a remote Class 5 switch. From the network edges, service-mediation devices connect to the backbone switches of the service provider's choice.

In general, service-mediation platforms accomplish three key things:

* They change the existing economic model of delivering voice services in a way that will yield higher profit margins for providers. Distributed systems enable CLECs and others to extend the functionality of a multimillion-dollar Class 5 switch across multiple markets. Equipment costs tend to be at least an order of magnitude less than these mainframe-based switches (beginning in the $100,000 range).

* They unite older TDM/circuit switching with newer packet-switching technology. This enables providers to accommodate a varied mix of customers, extend their network reach, gain the efficiencies of statistical multiplexing if and when desired, and future-proof their investments.

* They integrate telecom and data communications directories. Directories include information on signaling and formatting requirements associated with each connected network, as well as information on customers. Blending them enables the building of one network platform for supporting any-to-any connectivity and value-added services.

Natural Selection

To carry its weight as part of a service provider's network infrastructure, a service-mediation platform installed to serve 21st century requirements should have the following traits:

• High reliability/redundancy akin to that achieved by the PSTN;
• The ability to operate natively in both TDM and packet-switched environments;
• The capability to scale sharply to support millions of users as the customer base grows; and
• Easy integration with any existing operations support system, such as billing, provisioning, fault management and traffic engineering (including integration with existing network management systems with the support of both web-based and system-specific command-line interfaces).

One of the heralded characteristics of the 100-plus-year-old phone network is that it is highly reliable. Unpaid phone bills aside, it is a rare occasion indeed when someone picks up the phone and fails to be greeted by a dial tone. As extensions to the existing phone network, service-mediation platforms then must support the same levels of network availability, generally pegged at 99.999 percent (or "five nines") reliability.

In addition, supporting many access interfaces and transport protocols means that a service provider could deploy a single platform, managed in a consistent way, throughout the network. This is operationally more efficient and less expensive, for example, than running separate gateways for each pair of protocol translations required, notes Peter Bernstein, president of Infonautics Consulting Inc., Ramsey, N.J. Having a network that can interface to other types of networks, at a minimum, prevents a service provider from isolating islands of customers.

Aside from the high purchase and configuration costs associated with a Class 5 switch, the floor space required to house a mainframe-based platform is substantial. Distributed devices must have a small footprint to keep real estate expenses down and for easy transport in case the provider decides to move a device to serve another market, as services can be deployed and changed quickly.

Business-savvy providers long have heard the ILECs fretting that their network infrastructures were built to support voice calls that last an average of five minutes--not dial-up Internet connections that often endure for several hours. Service providers building out their facilities now have the opportunity to take that factor into consideration in their network design up front.

Service mediation equipment includes facilities that enable service providers to build a network that can identify an incoming data call and route it around the voice network to a data network, such as the Internet. This design prevents dial-up Internet traffic from clogging voice switches with data calls.

For those service providers wishing also to differentiate themselves with value-added services, mediation enables that as well. For example, the service provider could provision Internet links as the "long distance" portion of an enterprise's wide area network (WAN) for connecting various CLEC networks around the country. They could be both an Internet service provider (ISP) and CLEC. TeleChoice's Gadecki envisions adding audio-only participants to videoconferences, when some attendees do not have access to the proper video equipment.

The value-added service offerings will differ from business plan to business plan. What is important is that service-mediation platforms open the doors to many opportunities rather than locking the service provider into a single service strategy and growth path. The dollars rung up in voice services far outweigh those collected by data network operators and will continue to represent a substantial market for many years to come. Still, data revenues are growing at a faster pace, and service providers might want to tackle that market sometime in the future.

The telephony world is following in the footsteps of the information systems revolution of the 1980s, when monolithic, inflexible mainframes and minicomputers began to give way to the more affordable and flexible microprocessor-based development platform. The arrival of the microprocessor enabled computer programmers to truly innovate, which led to information systems becoming a true competitive weapon for corporations and other organizations.

The "faster-better-cheaper" mantra of the PC is now making its way to the PSTN to work its magic in that environment. Once again, new development platforms will break down the barriers to innovation, in part by easing the cost and technology burdens of prototyping. The newer, distributed platforms will herald a new age of both mainstream and custom PSTN services, many tailored to vertical markets or to specific demographic groups.

Those who are experimenting with various telecommunications business models need a flexible and multiservice platform that will scale as their customer bases grow and their service needs change. Service mediation is a way to extend rewards of a proven market to new players, while future-proofing a provider's platform investments.

Steve Kelly is executive vice president and founder of Westford, Mass.-based Castle Networks Inc. He can be reached at skelly@castlenetworks.com.

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