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Local Exchange Carrier Voice Bypass
James Grady
09/15/1999 Posted: 09/15/1999 Local Exchange Carrier Voice Bypass Could voice be the killer application for DSL? While not every small and medium-sized business today is ready for Internet access, all businesses depend on voice communications as their primary lifeline to customers, business partners and suppliers. Eight voice channels and 128 kilobits per second (kbps) of data can easily fit on a 384kbps access line. Using digital subscriber line (DSL) networks to provide competitive voice services could easily transform the DSL market from a successful early majority phase to full-fledged mass acceptance. "Before DSL, a single copper pair could support analog POTS (plain old telephone service) and a maximum of 64kbps line. With voice over DSL (VoDSL) technology, DSL now supports multiline voice and data with multiple megabit per second (mbps) capacity per line," says Bryan Long, vice president of marketing at Copper Mountain Networks Inc., Palo Alto, Calif., the leading provider of business DSL according to industry analysts from San Jose, Calif.-based Dataquest, a Gartner Group Inc. company, and The Dell'Oro Group, Portola Valley, Calif. "Internet access could be considered the Trojan horse for a broad range of data and voice services. Going forward, we expect CLECs (competitive local exchange carriers) will leverage the full power of DSL for voice service and a range of enhanced applications, such as frame relay, corporate VPNs (virtual private networks), PBX (private branch exchange) extensionand videoconferencing." A Long Race In the three years that have passed since the ratification of the Telecommunications Act of 1996, incumbent LECs (ILECs) have managed to maintain control of more than 99 percent of local telecommunications markets, according to a 1999 report by PricewaterhouseCoopers LP, New York. The report predicts that CLECs, which were responsible for 2.6 percent of U.S. local revenue in 1997, will grow their revenue base to 11 percent by 2001 by enticing users away from the incumbents. While this is happening, it is a long way from the 30 percent share AT&T gave up to the LECs after divestiture. In 1997, ILECs and CLECs shared a $103 billion local telecommunications market. That market is expected to grow by 4.5 percent annually through 2007, to more than $140 billion, according to Merrill Lynch Global Research, New York, with CLECs gaining a greater share each year. However, breaking the ILEC stronghold is not easy for CLECs, especially when it comes to voice services, the core competency of the incumbents. Two Hurdles Voice CLECs face two hurdles in winning share away from the ILECs--they must break an existing customer bond, and they must be able to make a profit with only a small total percentage of customers. That's why, to date, voice CLECs have focused their efforts on the high-end business customer. Class 5 switches, the mainstay of enhanced custom local area signaling services (CLASS) such as call forwarding, call waiting, and three-way calling, cost between $2 million and $10 million per central office (CO), depending on the feature set and port count. These high fixed costs have forced voice CLECs to be selective in targeting areas of high density to reap a meaningful return, which can be determined by comparing the number of lines they must deploy to recover the port costs of their switches (see "Number of Lines Required to Recover Switch Costs" chart, below).
The 7 million small businesses in the United States spent more than $46 billion for data and voice services in 1998. Under the regulated ILEC tariffs, small businesses pay twice as much for service as consumers. (State public utility commissions subsidize residential and rural service through business service.) Because they do not have the leverage of larger enterprises in negotiating volume contracts, small businesses also pay higher prices than large businesses. "New Paradigm offers a service to help small and mid-sized companies choose the appropriate services and providers for their business needs," says Craig Clausen, senior vice president of New Paradigm Resources Group Inc., Chicago. "Customers often tell us that they've been promised voice service from a competitive carrier only to ultimately be denied the service--sometimes as much as six weeks or two months after the order has been placed--because they do not require enough lines to justify the cost of installation. The economics of facilities resale is such that voice CLECs are shying away from customers who are not 'on net,' that is, within the local service area of one of their existing Class 5 switches." Thus, small and mid-sized businesses represent a large opportunity for voice CLECs that can offer business-quality voice services at competitive rates throughout a metropolitan area. Saddled with legacy infrastructures, the ILECs manage both voice and traffic today through their time division multiplexed (TDM) circuit-switched networks. Built to support the characteristics of voice traffic--fixed data rates and average call durations of less than three minutes--these networks prove both inefficient and ineffective at handling data traffic, with its unpredictable data rates and average session durations of 45 minutes or longer. While the growth in voice traffic remains a flat 5 percent, data traffic--and bandwidth requirements--are growing exponentially, according to data from C.E. Unterberg, Towbin, New York, and IntelliQuest Inc., Austin, Texas. Over the last two years, a new breed of data CLECs has invaded ILEC territories in metropolitan areas across the nation to build broadband DSL networks. These carriers are optimizing their networks to support multiple types of service--voice, video and data--in the most efficient and cost-effective manner possible. While widely acclaimed for its support of high-speed data, DSL has many advantages as a transport technology for voice service:
While early VoDSL support required special wiring, support for asynchronous transfer mode (ATM) protocols and voice/data splitters, new solutions are now available that packetize voice and data for simultaneous transmission over DSL data links. These solutions allow business customers to use the same telephony equipment--phones, faxes, PBXs and key systems--and experience the same voice quality they receive today while taking advantage of improved economies and efficiencies of Internet protocol (IP)-based voice transmission. All the leading data CLECs have designed their DSL networks to handle the unpredictable, bursty characteristics of packet-based data applications. As such, these networks easily can be engineered to handle the deterministic traffic patterns of voice--patterns that have been built on a century's worth of engineering data. Internet telephony products designed for long distance bypass have to work around the latency and throughput limitations of the Internet. In contrast, LEC bypass solutions can rely on robust, high bandwidth, data-optimized DSL networks for carrying voice. The Internet generally is unreliable for high-quality voice telephony because there is no uniform way to guarantee bandwidth, specify a path or determine the latency of a call as it travels across the backbone. DSL networks, on the other hand, have been designed for data efficiency and provide a deterministic path for data from end user to carrier access point. The most successful of the data CLECs have engineered their networks to ensure the highest quality data transmission backed by service level agreements (SLAs). Using lower oversubscription ratios for business services than used by the average Internet service provider (ISP) network, these data CLEC networks offer much higher fidelity. Many data CLECs guarantee 99.99 percent packet delivery and round-trip latency on the order of 10 milliseconds (ms). For networks with these characteristics, toll-quality voice, which requires a maximum latency of 60ms for transmission quality, is an easy application to deliver. An Economic Win-Win-Win Data CLEC networks are a well-designed, increasingly available utility for voice traffic. That's why many voice CLECs are now partnering with data CLECs. "NorthPoint initially focused on serving the data needs of small and mid-sized companies, but these customers are prime targets for competitive voice services," says John Stormer, vice president of marketing at NorthPoint Communications Inc., San Francisco. "Not only have we optimized our network to support packet-based applications, we also have rolled out our transport services to all the major metropolitan markets nationwide, passing more than 4 million small and mid-sized businesses in the United States by the end of the year. That makes us an attractive partner to voice CLECs that want to maximize their customer base and offer toll-quality voice services." Data CLEC metropolitan networks allow voice CLECs to bring customers to a single, centrally located Class 5 switch, thus bypassing the ILEC. Using voice over packet technology and existing DSL data networks, voice CLECs now can reach customers throughout the local access and transport area (LATA) without purchasing additional Class 5 switches. The result is a winning combination for all parties. Voice CLECs gain access to a whole new class of customer--one that was previously unprofitable for them. Data CLECs sell more transport, making them more profitable as well. The end user benefits from increased competition in the local loop. One of the most important criteria for success of VoDSL is its ability to integrate into existing customer and carrier networks with minimal changes to either, to reduce time to market and cost of sales. Emerging VoDSL solutions are implemented as a simple overlay to existing CLEC networks and provide native interoperability with customer voice and data equipment. The typical network architecture for a data CLEC is to collocate equipment in multiple ILEC wiring centers and to funnel end user traffic over high-speed connections back to a centrally located hub. From the central hub, the data CLEC distributes data traffic to upstream ISPs. The data CLEC typically sells only transport, and the ISPs actually own the relationship with the end user and provide value-added services such as Internet access. ISPs can reach end users throughout the entire metropolitan area with a single fat-pipe into the central hub. To implement LEC bypass VoDSL, voice CLECs can purchase wholesale data transport from the data CLEC just like any ISP can. They overlay voice support by using voice over packet signaling software at the customer premises and a local exchange gateway at the Class 5 switch. VoDSL solutions support multiple voice calls, intermixed with data, over a single DSL link. When a customer makes a voice call using existing equipment, the voice over packet software converts the signals to IP packets and then prioritizes the packets for transmission over DSL networks. Any unused bandwidth is automatically allocated to data. The local exchange gateway receives IP packets over the broadband network, unpacks the voice channels and converts them back into circuits that connect to any Class 5 switch. The local exchange gateway does not recreate any features inherent to a Class 5 switch, such as call detail records and other billing and accounting functionality. Class 5 switches would operate exactly the same way they do today. "The local exchange gateway architecture for VoDSL represents a cost-effective solution that enables Choice One to deliver the full range of Class 5 telephony services to its small and mid-sized business customers," says Robert Merrill, vice president of business development of Choice One Communications, a voice/data CLEC based in Rochester, N.Y. "By supporting integrated voice and data over a single user network interface (UNI) as opposed to using multiple circuits, VoDSL is more cost-effective to deploy and provision. And it also provides immediate scalability. If the customer needs another voice line, the capacity is there in most cases." No Change in Business Models Another advantage of the local exchange gateway architecture for VoDSL is that it requires no change to the existing business models of either data CLECs or voice CLECs. Voice CLECs own the customer relationship. They establish their own reseller channels, install the customer premises equipment (CPE) at the customer site and handle all aspects of billing and customer service. To deliver voice support, they order circuits from the ILEC and provision the service through a Class 5 switch. Data CLECs, on the other hand, generally offer wholesale transport services to other service providers. They coordinate with these partners to install DSL modems at the customer premises, but direct customer support is offered through the ISP partners. With the local exchange gateway solution, these relationships remain intact except for very slight variations:
James Grady is vice president of marketing at TollBridge Technologies Inc., Sunnyvale, Calif. He can be reached at (408) 585-2140.
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