Towards a Packet-Based Network 

The promise of Internet protocol (IP) and its supporting framework is simple, yet grand: extend the benefits of IP to every network, and eventually create a ubiquitous global network based upon packet switching. A high-capacity IP network could enable a carrier to cost-effectively offer a number of managed IP services, Internet access, and voice services to other carriers and/or business customers. Optimists have long maintained that merging multiple services over one network will be the solution to the telecommunications service providers' problems of declining service revenues, increased competition, and aging infrastructures. 

The attractiveness of IP comes from two major areas: 

• Cost Savings:  Carriers expect operational and infrastructure savings from deploying new IP-based services. Applications that were once run on circuit-switched networks are believed to be much less expensive to implement on IP networks. Most of the activity in building softswitch architectures, for example, has focused on cost reduction. 
  
• Revenue Generation:  Every carrier is looking for new ways to enhance their service suites, which are rapidly becoming commoditized. Some view the highly-personalized services enabled by IP as the ultimate "sticky" applications that will stem the tide of customer churn. Other carriers desire new, affordable service applications that will bring additional revenue streams. 

During the 1990s, many new companies were started specifically to take advantage of advances in optical networking, IP, and switching technologies. Today, there is considerable doubt whether the dreams of these companies will ever come to fruition, at least on the scale initially envisioned. For example, after four years and 100,000 miles of cable installed throughout the world, Global Crossing Ltd. is saddled with over $12 billion in debt and other commitments, faced with federal investigation into its accounting processes, and is unable to sign up enough customers to build its revenue to a break-even level. 

The failure of many of the ambitious new telecommunications ventures highlights the importance of controlling costs and identifying new revenue streams for the carriers and service providers. There is little doubt anymore that IP can drive down carrier costs. But can it enable compelling new services that customers are willing to pay for? By now, the rapid acceptance of end-user IP services was, in theory, supposed to lead to greatly increased network traffic, thus validating the business models of the Global Crossings of the world.

For too long, IP has been positioned as the magical potion that will cure everything. Even equipment providers have been guilty of promoting this, saying that their products can enable "multiple new services", without being clear about what exactly those new services are. The industry has suffered immensely from too much hype and wishful thinking. Ultimately, there are very good reasons to transition to IP, but it is important to be realistic and pragmatic about them.

IP Applications Services Defined 

Service providers are already in the midst of a gradual evolution from circuit-switched to IP-based packet-switched infrastructures. Most of the evolution so far has taken place in the transport and access parts of the network and in the development of IP infrastructure elements, such as gateways and softswitches. Now, the market for next-generation IP applications services is beginning to take shape, and IP-based application servers have been developed to deliver actual revenue-generating services for carriers. 

Insight believes that the following six services will be the primary enhanced services implemented in the IP environment in the near-term: 

• Audio conferencing, 
• Video conferencing,
• Web/data conferencing,
• Mobility management/follow-me services, 
• Unified messaging (UM), and 
• Instant messaging (IM). 

These services either have circuit-switched equivalents already generating large revenues or display the potential to become large revenue generators as IP-based services. They may also be service enablers or components for more complex services. 

Audio conferencing has been the primary way that businesses have conducted real-time collaboration in the past, but video and Web/data conferencing (involving Web presentations and application collaboration among conference participants) are increasingly coming in vogue. IP-based audio, video, and Web/data conferencing will continue to be driven primarily by business users. Conferencing services are not expected to be used by consumers in any large numbers, since three-way calling and custom local area signaling services (CLASS) sufficiently meet consumer needs. 

IP will provide customers with more control over their services than ever before. Mobility management (also known as follow-me/find-me) services allow callers to contact a person on a preferred device, and give the recipient control to accept or deny the call. A person might, for example, want to be available for e-mail and calls from business acquaintances, but not for personal phone calls. In the future, our identity will be kept separate from our terminals, and the access points that terminals use to connect to the network. Mobile data users are the early adopters of follow-me services, since they are usually professionals that need to be in regular contact with customers and colleagues. 

UM gives subscribers the ability to receive voice mail, e-mail, and fax messages in a single mailbox that can be accessed using multiple devices. Many workers need to review and respond to multiple voice, e-mail, and fax messages every day. UM is seen by many mobile professionals as a service that can increase productivity. INSIGHT expects that UM will experience increasing adoption rates over the next five years, translating into additional revenues for service providers.

IM is an IP-based application that enables users who are concurrently online to send messages to each other instantaneously. Users do not have to address, send, and download instant messages-steps which are required for e-mail messages. The early adopters of IM have been teenagers communicating with friends that are concurrently online. These IM sessions typically include discussions about friendships, hobbies, gossip, and homework. Today, IM is rapidly becoming adopted as a real-time collaboration and productivity tool within the enterprise. 

Although this report focuses on these six services, the scope of potential new IP services that will provide value to businesses and consumers in the future may be much greater. As carriers consolidate and wireless third generation (3G) networks are deployed, developing viable business models to market, bill, provision, and provide excellent customer care for all of these services will be a major challenge.

IP Applications Services Migration Adoption by Traditional Carriers 

How willing are the service providers to invest in technologies that enable new services, given the current negative economic and financial climate in the telecommunications industry? Although Internet service providers (ISPs) and next-generation network providers, such as Level 3 Communications and Genuity, Inc., have been leading the drive towards IP, traditional carriers see IP application platforms as a means of beginning their slow migration to fully-convergent, IP-based networks and services. 

Many incumbent carriers are choosing to initially implement IP-based services on an overlay network. Taking this approach, carriers do not have to replace circuit-switched network elements, which usually have minimal ongoing operational expenses. In an overlay network scenario, the packet-switched network is isolated from the circuit-switched network, and the two are connected via a gateway. For example, packet-based Web applications can control the public switched telecommunications network (PSTN) portion of a conference call through a gateway.

Service Cost and Pricing Advantages 

Does migrating the existing circuit-switched services to IP truly offer a significant cost and pricing advantage to carriers? Perhaps the best example of IP's benefits to traditional services can be seen in the realm of audio conferencing. Audio conferencing services have been available on the PSTN for over 20 years; however, they have not been easy to provide. Service providers had to purchase expensive software packages in order to enable their Class 5 switches to handle even the smallest conference calls (e.g., three-way calling). Larger conference calls had to route PSTN calls through expensive hardware and software external to the switch. Achieving high-quality mixing of the different voice streams was the most difficult portion of the process, resulting in conference call bridges with costs of over $1,000 per port. 

With the deployment of IP-based infrastructures, the cost and difficulty of audio conferencing can be addressed. First, it is easy to copy packets and route them, so the cost associated with large conference bridges containing many physical ports can be avoided. Since a single 100 Mbit/s Ethernet port on an IP switch can handle hundreds of simultaneous users, hardware ports are not required for each circuit. Furthermore, the price for one Ethernet port is probably equal to just one or two T-1s, which support only 24 to 48 users!

Risks 

The migration to IP is not without risk. Two key questions that remain unanswered in the IP applications services market include: 

• Will the quality of the real-time services (e.g., audio conferencing) over IP be solid enough in the next few years for most carriers and customers to switch? 
• To what extent will enterprises take advantage of their existing IP infrastructure and data communications expertise to implement their own services-thus avoiding additional service provider charges?

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