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VoIP Update: Part 1 of 3
By Ken Osowski |
As the migration to Voice over Internet Protocol-based calling has expanded within the prepaid market, the buzz surrounding it has also increased. In the process, the term VoIP itself has become muddied, and it’s creating potentially costly confusion that is not particularly helpful for prepaid service providers looking to migrate and grow.
As often happens with major trends, the definition of VoIP has become too broad and is often misapplied. VoIP is alternatively described as a market, a technology, or a service. The common view is that the services themselves are the real foundation, but this gives rise to a few basic questions that seem obvious to a service provider… that is, until they start talking to potential vendors and network partners, and realize that they’re not sharing the same ideas, they are just using the same buzz words.
VoIP Services Defined:
Pure-Play, Hybrid and Hosted
Technically speaking, the only true pure-play VoIP service is a peer-to-peer one, where VoIP is the protocol by which two PCs or IP endpoints talk directly, without any network interaction or overlay of basic services - the cans and string approach. The early H.323 Cisco gateways were analogous to cans and string, and drove the first IP point-to-point international traffic such as the Los Angeles-Beijing link that famously went live in the late ‘90s. But the VoIP connection served only the two local communities, and traffic coming on and off network, as well as to outlying areas, went through public PSTN networks.
Let’s look at the differing approaches of two early leaders, and at the more incremental approach that service providers are now taking to drive quick, economical market entry and pay-as-you-grow service and capacity build outs.
In the beginning, there were Vonage and Skype. Each had a radical market entry strategy and a services set that was unique at the time, tuned to their respective early target markets. Together, they heralded a new era of VoIP services that paved the way for today’s ubiquitous hosted IP service model.
Evolution of a Pure-Play Service
Skype and Vonage both initially promoted and built their public personas on the pure-play VoIP model. Skype, in particular, was, and in some ways still is, regarded as a VoIP peer-to-peer, pure-play “free” service. Yet the Skype strategy was to drive “free downloads” that worked for a narrow subscriber subset. A model that attracted and drove their real business - billable Skype-in/Skype-out call interactions with the PSTN, with revenue-generating services layered in. Skype initially stormed the market and terrified the major service providers with its promise of free calling and its proprietary codec - which bolstered its market entry strategy of ubiquitous downloads. Skype immediately became a PR darling in the process, but the PSTN conversion strategy gradually became clear. Skype is, in many ways, a hybrid VoIP service; it is a free IP roadway, but with toll gates at essential PSTN destinations. Today, questions remain about the number of concurrent calls the service can support with quality and reliability. It’s worth noting however, that Skype appliances have expanded the service’s reach beyond PC-to-PC calling, and this once pure-play service is now clearly a converged service going after the larger market share with an evolved business model.
Evolution of a Converged Service
Vonage, on the other hand, appears to be a VoIP pure-play service – although never a peer-to-peer one - that since its inception has more closely mirrored the PSTN business model, albeit with flat rate billing instead of per-call charges. The Vonage model replaced legacy PSTN phone service with a like service that originated on an IP network and could call the PSTN. The preeminent profit-driven, facilities-based Voice over Broadband (VoBB) service, Vonage, gathered together emerging IP communication components, acting as a de facto integrator and architect of then-new technologies, and quickly emerged as a different kind of VoIP toll road. It offered a compelling flat rate service with lots of service features bundled in, and connected to subscribers’ existing phones with a simple and economical plug-in appliance. Its services menu quickly expanded and stratified into low end/high end consumers and business bundles, pre and post paid. Voice quality, session stability and CALEA/E911 support issues soon emerged, but despite these, Vonage achieved indisputable success, amassing maybe one-fifth of the 8.5 million VoIP subscribers as of 2006, according to the Yankee Group. Now, however, this VoIP pioneer faces truly major challenges: the entry of the cable companies into the VoIP market, and the packet-to-circuit patent infringement suit successfully brought against them by Verizon.
Skype and Vonage represent different types of “roll your own” VoIP technology models, one a pure-play and the other an overlay, but their business models have both converged. Moreover, they have two key attributes in common with one another and with other PSTN and VoIP service providers. 1) Their successful growth is gated on their concurrent call capacity support. 2) They both need to generate CDRs in order to logically track their overall cost basis, tune their and pricing and service strategies, and to plan and provision capacity. Skype, of course, also needs those all-important subscriber CDRs in order to generate on/off net billing. So, in key ways, the dynamics of these two networks closely mirror both PSTN and hosted VoIP services.
Now the market has matured to the point where hosted services are an easier reality. Networks are decomposed so that service providers can exchange minutes with other service providers, and gain access to terminations and originations without any TDM at the POP. Prepaid services are billing mechanism choices that now layer into an increasingly broad array of services.
This hosted service model aligns perfectly with the prepaid service provider’s objectives. The only intellectual property required to launch or migrate to a VoIP service is a business model, and rather than a facility build-out, the service provider needs a relatively modest amount of cash. The application server, with interfaces to SBCs, media gateways, etc, lets prepaid service providers assemble best of breed service applications, subscriber billing, etc. and launch a service without making massive investments.
That’s an overview of the evolution of VoIP services. Next month we’ll look at how VoIP network elements are decomposing and how much easier it has gotten to be an IP facilities-based service provider of multiple services for modest initial investments.
Ken Osowski is the VP of Marketing & Product Management at Pactolus Communications Software. He can be reached at Keno@pactolus.com.
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