Service Providers Turn to Converged Networks as Traditional Voice Revenues Continue to Wane
January 6, 2004
By Jason Deign, News@Cisco
There was a time when telecommunications operators considered voice an unlikely candidate for transport over IP. Now, according to research from the Yankee Group, for Cisco Systems®, they are betting on it for their future livelihoods.
A study of 25 operators in the €193 billion European fixed telecoms market, revealed at ITU Telecom World 2003, has found that 80 percent of operators believe a packet-based (IP) voice infrastructure will stimulate the creation of profitable new services.
In addition, 43 percent believe that new services will be the key to growing revenues, which is the major concern for more than half (53 percent) of all respondents. The second-largest projected area for growth is DSL broadband - cited by 23 percent - which is interlinked with convergence.
Getting more money in is a critical issue for Europe's service providers, as fixed voice profits are predicted to fall fast: from 88 percent of total revenues in the consumer market in 2002 to 68 percent in 2007 and from 77 percent to 61 percent in the business market over the same period.
At the moment, 30 percent of respondents to the Yankee survey rely on voice for 90 percent or more of their revenues, but in three years' time 96 percent believe their principal revenue source will be something else.
Only six percent of operators are currently experiencing growth in voice revenues. For 50 percent of all respondents to the survey, margins are flat - and for another 44 percent, they are decreasing.
In addition, many operators are finding that their voice infrastructure is reaching the end of its lifespan.
In this environment, it makes a lot of sense to migrate voice traffic onto an IP platform - which many operators already have experience of doing through back-office implementations - and attempt to create new service offerings to reverse the downward trend in revenues.
Three-fifths of European operators already employ some form of packet voice infrastructure, says Yankee Group, and 42 percent of incumbents interviewed are planning wide-scale migration in the next two years.
New service deployment was found by Yankee to be the main driver behind moves to packet-based voice services, quoted by 46 percent of respondents (next came customer demand for convergence, with 25 percent).
Although convergence helps cut capital and operational expenditure, only a third of those surveyed were mainly preoccupied with reducing costs.
This suggests that many service providers have now pared their operations down to the bone and are ready to go on the offensive, using converged networks.
For many Cisco service provider customers, the move to converged networks is not a dream - it is a reality.
Telecom Italia, for example, now transports more than 17 billion minutes a year of national voice calls over an IP backbone. The reasons why the service provider moved to a converged infrastructure are similar to those facing many other European operators.
Telecom Italia began implementing digital switching technology in its network 20 years ago and ended up facing an obsolescence problem with its equipment.
In addition, data volumes have grown to twice those of voice, so the latter was rapidly becoming just another application over the data network. And finally, Telecom Italia wanted to roll out new services such as video communications and advanced messaging.
Under a project that started three years ago, Telecom Italia has moving from a core based on 66 transit exchanges to 24 points of presence, all using equipment from Cisco.
The new network infrastructure means more centralised operations and maintenance, lower power consumption, less use of office space and a reduction in the local maintenance effort.
Together, these represent a cut in operational expenditure of more than 60 percent.
Stefano Pileri, head of Telecom Italia's domestic network, says: "Now all long-distance voice traffic in Italy runs over IP. It has been a very important experiment and the driver was mainly economical, for reduction in operational expenses and an optimization of capital expenditures."
Another service provider, Equant, has embraced convergence as a way of offering value-added services to business customers. The company has 800 IP VPN customers and 100 IP voice and data customers. Its largest IP telephony customer has 417 sites worldwide.
Thanks to convergence, earlier this year Equant was able to launch a fully managed end-to-end video transport service in 85 countries.
Peter Moebius, vice-president and head of Equant Switzerland, says: "We were the first carrier to take up IP VPN technology - we deployed it on a global scale because we thought it was our only chance for a sustainable future.
"Equant is an overlay carrier and we don't own our own infrastructure. We have to make money on services and solutions. At the time we started looking at convergence, our voice services were not profitable, so our only choice was to converge data and voice.
"Here we are today with a platform that carries fully converged voice and data - within our network, everything is converged."
Jason Deign is a freelance writer based in Barcelona, Spain.
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