Is your business getting ready to migrate to IP?  If not, should it?  A fresh look at IP service flexibility advantages, emerging operational cost considerations and impending industry requirements may surprise you, and might also possibly trigger some conversation with your accountant about TDM depreciation schedules.

In any business, margins are sensitive and affected by factors beyond baseline cost and price of the goods or services offered.  And especially in arbitrage markets, you’ve got to know when to proceed on course and when it’s time for a major directional shift.    

For the last 15+ years, service providers have used TDM-based programmable switches to offer add-on voice services.  These services are referred to as ‘enhanced’ because they try to enhance features of telephony services deployed using TDM-based Class 5 switches. And because those behemoths are not easily or cost effectively upgraded, overlay networks have been built using programmable switches to support services – an approach that’s expensive, not particularly scalable, and affords very little service feature flexibility or differentiating innovation.  The TDM approach isn’t just architecturally constraining, it also ties the service provider’s hands when it comes to making procurement and expansion decisions:  In the TDM switch environment, enhanced service applications can work only with ONE programmable switch product, which locks the service provider and switch reseller into a rigid relationship.  For these reasons, many prepaid service providers have resigned themselves to gradual ‘cap & grow’ migration to IP, adding incremental IP capacity and services while continuing to run existing business on TDM platform.

But new factors now emerging are forcing prepaid service providers to take a fresh look at whether it’s time to “ditch the switch” and migrate fully from TDM to IP. 

One reason is that TDM switches carry ongoing operational and maintenance costs that far exceed those of IP.  According to Heavy Reading, early research indicates an average IP network’s power consumption to be approximately one-ninth that of a TDM-based solution.  Should Congress enact proposed energy consumption penalties that are now in early discussion, the costs and power draw of TDM will become sufficiently burdensome to warrant IP migration. 

Moreover, last month, the FTC stepped up threats of enforcement actions against the distributors of prepaid calling cards who have conducted what it calls deceptive marketing, and especially non-disclosed charges.  As enforcement steps up, your solution needs to allow you to prove compliance with regulations and pricing requirements, and readily adapt services as these requirements continue to shift. 

The ability to continually sustain and prove compliance will become critical with the enactment of a piece of legislation now pending.  The Prepaid Calling Card Consumer Protection Act requires prepaid calling card providers and distributors to clearly and conspicuously disclose information such as the exact usable dollar value of their calling cards, the number of minutes provided by their calling cards, and any fees or limitations associated with their use.  A number of consumer groups are lobbying heavily for this legislation.  For example, The Hispanic Institute, a non-profit based in Washington, D.C., cites phone card tests it has conducted which indicate that on average, prepaid cards deliver about half the minutes promised, and claim that the differential between costs and actual minutes amounts to close to $1 million dollars a day.

IP service delivery platforms, especially those based on the Session Initiation Protocol (SIP), give prepaid service providers a clear, economical route to circumvent looming compliance and operational costs.  SIP application servers enable the delivery of prepaid services with more feature and business model flexibility and new levels of economy, while fully meeting and exceeding the equivalent functionality of TDM-based switches.

The service flexibility and potential feature innovation SIP-based solutions offer – combined with better operational costs, better ability to keep pace with shifting regulatory requirements, and better overall profit opportunities, – renders the TDM-based programmable switch for voice service delivery the equivalent of the dedicated word processor, circa 1980s.  The application’s useful, but the dedicated hardware is obsolete.

Like the PC, SIP-based solutions are driving new prepaid market opportunities based on flexibility, reliability, redundancy, economy and the ability to evolve. 

They are also the reason that profit-driven providers are taking a new look at migrating away from programmable switches and other SIP-less gear, and leveraging their organization’s Depletion Allowance for Used Media and Platforms (the DUMP).



Ken Osowski is VP of Product Management for Pactolus Communications Software, whose IP service applications include prepaid, post-paid, conferencing and operator assistance. Contact Ken at kosowski@pactolus.com.