VoIP interconnects, tipping the balance
With VoIP traffic growth soaring, 2009 could prove the year we see the potential of the IP telephony market fully realised. But there are a number of obstacles to overcome.
The statistics on VoIP growth are impressive and compelling. Voice over IP, or IP-based telephony, as some operators prefer to call it, is taking off round the world. Ovum reports that between 2003 and 2008, VoIP international wholesale minutes have more than quintupled from 22 billion to a projected 113 billion a year. In its latest Traffic Analysis report, Telegeography projects that VoIP carriers will add around 28 billion minutes of traffic in 2009 compared to 18 billion minutes for TDM carriers. Ofer Gneezy, president and CEO of Ibasis, points out that Skype traffic is “growing at a ferocious rate”, with the volume of traffic generated by Skype today equivalent to the total volume of US outbound international traffic. In the third quarter of 2008, Skypeout traffic was equal in volume to Italy’s outbound traffic. Telegeography puts figures to what it calls “remarkable” volumes of Skype traffic, pointing out that the service generated just over 31 billion minutes of international Skype-to-Skype traffic in 2008, adding that “five years after its launch, Skype-to-Skype call volumes are equivalent to 8% of the traffic routed by all international voice carriers worldwide” and that Skype has emerged as the largest provider of cross-border voice communications in the world. Point Topic estimates that during the first half of 2008, 77.2 million people worldwide had subscriptions to VoIP services and this number is likely to climb steeply as global recession bites and customers seek cheaper ways to communicate.
An interconnect stumbling block
Many carriers are dealing with the soaring growth in VoIP traffic by increasing their investment in next-generation IP networks. But despite rising numbers of operators able to carry native VoIP end-to-end across their core networks, interconnections with other carriers, whether bilateral partners or new VoIP providers, remain a stumbling block to the full realisation of an IP telephony market. The overwhelming majority of the world’s interconnects are TDM-based – as Telegeography points out, the world’s 50 largest bilateral international routes accounted for 124.5 billion minutes of international TDM traffic in 2007, around 47% of the world’s total TDM traffic. So when it comes to handing off voice traffic to partners, more often than not, carriers need to convert their VoIP traffic to TDM voice. And so ingrained is the TDM culture within operator organisations that VoIP-to-TDM conversion is common even when the partner intends to transport voice on across its own IP network. Comments Steve Coker, portfolio manager for voice convergence at Sprint, responsible for the evolution of Sprint’s long-distance voice services from TDM to IP: “BT is a very large network partner for us and we have interconnected with its next-generation voice network platform. But we still maintain our TDM interconnection infrastructure to make sure we use what we already have in place.” Tata Communications cites the case of one of its cable operator partners: both carriers have IP core networks that carry VoIP traffic but they continue to interconnect with one another via TDM. Tata Communications, like most carriers in today’s market, must operate dual infrastructure, both VoIP and TDM, to cater for a range of partners, including VoIP providers, carriers that haven’t yet migrated their core network away from TDM and carriers that transport VoIP across an all-IP core but haven’t yet migrated their interconnects from TDM to VoIP. This creates operational cost and business complexity which many operators are anxious to shed.
Strip out TDM completely?
Operators early to champion VoIP have long suggested that no one will truly benefit from the potential and cost-efficiencies of the technology until TDM has been completely stripped out of the voice path and native VoIP interconnections are in place. They point out the advantages of native VoIP interconnections: that they are faster and less costly to roll out than TDM-based interconnections, which require more expensive equipment, new dedicated private lines and longer set-up and testing times.
IP-based interconnections support business flexibility, enabling the carrier and its partners to turn capacity up and down on demand, in response to customer requirements. Such interconnections are more cost-effective because they support multiple services, not just voice. As voice services are re-implemented on SIP-based or next-generation IN platforms with richer features and more possibilities for integration with other IP services, operators will want interconnects that support them in full, which TDM interconnects are not equipped to do. And native VoIP interconnects promise quality improvements, since VoIP-to-TDM conversion introduces latency. Carriers with all-IP networks believe that the quicker the market as a whole adopts native VoIP interconnection, the faster all carriers can benefit from VoIP economics and service flexibility.
Given that bilateral agreements between carriers account overall for 70% of the world’s voice traffic and that these agreements are based on TDM interconnects, many operators have welcomed in 2008 the launch of a new organisation, i3 Forum, to tackle the issue of interconnect migration to VoIP. Other industry groups have been working on the problem of VoIP interoperability for some time, not least because, unlike TDM voice, VoIP is not based on a single set of tried and tested standards. VoIP services speak different signalling protocols, including H323 and numerous variants of SIP. In addition, VoIP carriers and vendors support different encoding algorithms, or codecs. Interconnecting VoIP services given the range of possible protocol and codec options is challenging enough but as VoIP becomes increasingly entwined with other IP services in a next-generation world, the entire area of IP interconnection is fraught with difficulties. It is this potential for incompatibility which the IP Internetworking Alliance (IPIA, formerly the GSMA’s IPX (IP eXchange initiative) and IPSphere Forum, now part of the Telemanagement Forum, have been working to address and eliminate.
i3 Forum claims to be different because it addresses the VoIP interconnect problem specifically from the point of view of international carriers with large numbers of bilateral agreements for retail voice traffic. If the industry is to reach a consensus over VoIP standards and the best way to migrate away from legacy TDM interconnects, it makes sense for those operators with the largest numbers of interconnects to weigh in. The founders of the i3 Forum, including AT&T, Deutsche Telekom, Orange, Telefonica, Telecom Italia Sparkle, Telekomunikacja Polska, Teliasonera and SingTel, each have around 300 bilateral agreements.
Carriers that have since joined the Forum are in a similar situation. Tata Communications, for example, transports around 25 billion voice minutes a year as VoIP but only 5% of this traffic is exchanged natively, as VoIP-to-VoIP, with other operators. Ibasis used to have close to 70% of its interconnects as native VoIP but this percentage has been diluted now that it has taken over KPN’s and TDC’s TDM networks. Sprint has over 40 international IP interconnects with carrier partners, but these are typically with specialist VoIP carriers or operators with which Sprint exchanges a very small volume of traffic: its bilateral partnerships continue to use TDM.
Could 2009 be the year?
The i3 Forum will draw up recommendations to guide carriers wanting to migrate their interconnects from TDM to VoIP. The guidelines aim to avoid duplication of effort and speed up the migration process. “It’s not efficient for a carrier to engage in one-to-one discussions with partners every time it wants to set up an interconnect,” says Philippe Millet, chairman of the i3 Forum. “At the moment, protocols aren’t implemented in the same way, there is scope to interpret standards differently and too much time-consuming testing is required.” The appearance of the i3 Forum has raised hopes that 2009 may become the year that a large chunk of bilateral traffic finally moves away from TDM, tipping the balance of voice traffic between operator organisations onto next-generation networks.
This is certainly the agenda for TI Sparkle, for example. “Our prediction for 2008 is that we will have managed four billion minutes as VoIP,” says Stefano Olivieri, TI Sparkle’s international voice marketing development director. “If we migrate to native VoIP interconnects in 2009 with major partners like Orange, Deutsche Telekom, Tata and Ibasis/KPN, it would be possible to reach five billion VoIP minutes.” Olivieri adds: “We want to migrate to VoIP interconnects as fast as possible. We urgently need additional capacity to support customers in emerging markets and we still need to use TDM ports for these customers. Our network people will now only invest in IP, so the sooner we can free our hundreds of TDM ports for reuse with customers in regions such as Africa and south America the better.”
Not all carriers are as driven as TI Sparkle to start migrating away from their TDM comfort zones. The i3 Forum will need to negotiate three large obstacles to progress during 2009: the existence of IPIA and IP interconnect standards emerging from this standards-making body; the global economic downturn and its impact on carriers’ capex plans; and fears that native VoIP interconnects will undermine the traditional voice transit business model, throwing into doubt the value of owning a transport network.
The IPIA is now taking on the responsibility for driving IPX standards for a managed, private network for IP service delivery, with high security, quality and differentiated class of service features. A number of carriers have privately expressed reservations about the need for i3 Forum given that IPX interconnect trials have been underway for some time. They feel that the existence of a second industry forum introducing yet another approach could confuse the market and be counterproductive. Some believe that the foundation of i3 Forum was politically motivated, since IPX is heavily supported by Vodafone, which was trying to bring Verizon on board through Verizon Wireless, while i3 Forum has AT&T and Orange as founder members. The i3 Forum, on the other hand, maintains that despite IPX’s desire to establish a generic industry standard for high-quality, secure IP service interconnection applicable beyond the mobile domain, IPX is not a solution for the broader market. “Mobile operators are a large part of our customer base but they are not the only customers of i3 Forum members,” Millet points out. “IPX promotes high-quality solutions, cascaded billing, transport transparency and a choice of SLAs. But there may be other customers that can’t afford or don’t want IPX quality or other features. We need to address the spectrum of operators that buy voice.”
The i3 Forum is quick to say that its aims and those of IPX are “complementary” but it will need to prove that this is indeed the case in the coming year. Carriers with both mobile and fixed customer bases are already starting to put pressure on the two organisations to talk to one another and co-operate. Such carriers don’t want to have to provide one solution to fixed VoIP customers and another to mobile customers. Both groups have now attended joint meetings, with more exchange of information planned. However, there is unlikely to be a merger between the two initiatives any time soon.
Proceeding with caution
The global credit crunch makes it difficult for anyone to guess whether carriers will have much of an appetite for interconnect migration in 2009. The momentum behind next-generation network investment may be unstoppable within carriers such as TI Sparkle or Tata Communications, making them among the keenest to move away from TDM interconnects. Other carriers with next-generation network developments underway are nevertheless proceeding more cautiously when it comes to swapping out TDM equipment. Carriers are questioning whether the business case stacks up in the current climate since TDM-to-VoIP migration isn’t simply – as some vendors would have it – a case of replacing large and expensive-to-run boxes with cheaper, off-the-shelf equipment that frees valuable floor space. TDM interconnects are at the heart of an operator’s billing model: VoIP interconnects require changes to OSS/BSS, for example, as well as investment in routing engines and security mechanisms.
Sprint says that it sets up native IP interconnects with new partners as a matter of course but will continue with TDM interconnects all the while there is “no rip and replace business case,” Coker says. “We have a lot of invested capital in offshore fibre-optic cables which give us point-to-point capacity,” he adds. “Some of these are being retired and when they are, instead of replacing that point-to-point bandwidth, we’ll ride over the IP backbone. But we’re only doing this when it makes economic sense. When there was differential pricing between TDM voice and VoIP, then cost efficiency was a driver to switch. Now we don’t see cost savings from VoIP.” In fact, an anecdote from Bob Bradley, product line manager at Sonus, suggests that TDM could become the cheaper option. “A Tier 2 customer told us that it wants to do IP peering but the operators it connects are to being offered TDM equipment at a price they can’t refuse,” Bradley says. These operators also have TDM expertise and supporting systems and processes in-house, an added incentive to resist change.
One of the fear factors holding operators back from implementing native VoIP interconnects is the potential impact on their business. They see VoIP interconnection as a threat to the traditional voice transit model which generates large revenues, even if it is no longer the highly profitable business it once was.
VoIP still carries with it the negative connotations of low-quality, over-the-top and for-free services as well as the idea of VoIP peering – direct connections with IP partners that remove the need for transit services and revenues. A number of carriers saw the IPX billing model as a threat to bilateral revenue streams, especially given IPX’s split – in the quest for quality – between transport and termination, making it transparent to customers how much they are paying for transport and who is terminating their traffic.
The i3 Forum plans to start addressing business model issues in 2009, with particular reference to future enriched retail voice services. The hope is that the i3 Forum will hold back the tide of business model change where bilateral agreements are concerned but that its guidelines will make it easier and quicker to do business with the wider community of VoIP providers that is springing up round the world. If carriers don’t set up VoIP interconnects with such operators, they may find themselves becoming uncompetitive in terms of price and quality.
Many operators will need to use IP peering platforms simply to keep up with the rise in VoIP provider numbers and to avoid having to invest in sophisticated ENUM and number portability solutions. Only a handful of the largest voice carriers with the deepest pockets are likely to become IP peering platform providers and operators such as Tata Communications and Interoute are likely to emerge as frontrunners in this race during 2009.
The next 12 months will see continued migration to VoIP, including, with a fair wind, a high proportion of bilateral traffic. The i3 Forum is seen as a positive force for VoIP in the industry – if it succeeds in its aims. The industry urgently needs the Forum’s founder members to produce early success stories, proving that TDM-to-VoIP migration can be carried out quickly and cost-effectively and that it does yield business benefits when applied to bilateral relationships. If this is the case, 2009 could be a watershed year for VoIP in the wholesale market.