Carriers' fortunes change with IP

Before the tech bomb, new carriers were going to take over the world. But since the market imploded, it’s been the old guard who’ve adjusted best to the mantra of end-to-end IP, argues Anthony Plewes.

The telecoms landscape has changed dramatically since the mid-1990s. Back then a new breed of IP carriers threatened to upset the comfortable world of the circuit-based dinosaurs with new services for the new internet age. Although the market has not been kind to these carriers - many have fallen by the wayside or are licking their wounds in Chapter 11 bankruptcy protection - the IP vision they espoused is starting to make an impact in the enterprise.

What’s most surprising is that it's the dinosaurs who have proved the most adaptable to the new world order and are in the vanguard of evangelising state-of-the-art managed IP services. While the early IP carriers were selling pipe dreams, today’s IP carrier is selling fat pipes.

Carriers generally are now optimistic about the demand for IP services. A June 2003 report by Equant claimed nearly 70 per cent of IT decision-makers it surveyed across 90 European multinationals say IP services, including IP VPNs and IP telephony, were their priority investment over the coming year. This optimism, however, needs to be tempered with a certain amount of realism.

“The market has moved from being depressing to merely grim,” warns Camille Mendler, director, Telecommunications Strategies Europe at the Yankee Group.

There are questions over whether companies will actually implement convergence anytime soon. For example BT says that although 80 to 90 per cent of RFP requests specify that IP video and voice are an important consideration, few are actually implementing them from the off.

Alex Pannell, BT MPLS product manager, says: “The reality is that, at present, the number of customers actually taking advantage of technologies like differential classes of service (CoS) to enable convergence is relatively low.”

Many companies are simply getting to grips with running their applications on the new infrastructure before embarking on using it for voice or video. They will need to upgrade their own PBX infrastructure to be able to take advantage of the converged features of IP voice and video.

But developments in voice over IP (VoIP) technology mean competitive carriers who have always been dependent on data sales are now able to compete directly against incumbents for bread and butter.

“We have always lacked the voice part,” says Equant’s Peter Bannister. “But the advent of IP means we can combine voice and data over IP. Now you can plug an IP desk phone or a laptop into the network that is voice and data enabled and can get access to all the converged applications.”

Carriers all over Europe are starting to offer converged applications as a standard option. For example, in August, Telefonica Deutschland launched a VoIP solution as part of its MPLS IP-VPN solution. This lets customers receive data, voice services and unified messaging delivered across Telefonica’s wide-reaching converged network. Although Current Analysis’ Dustin Kehoe says that Telefonica is unlikely to make much of a dent in Deutsche Telekom’s PSTN and ISDN market, it does give Telefonica a much more compelling IP VPN offering.

Many operators now offer on-net calling in the IP VPN, which is excellent for keeping costs down. Others such as AT&T, BT and Equant also offer off-net calling. They carry the call to the edge of the IP network and use least-cost routing to carry the call over the PSTN.

“Voice is the next stepping stone for enterprises,” says Yankee Group's Mendler. The analyst house's research has found that 90 per cent of VPN users are now trialling voice over VPN. “How many will move over to this is debateable because big companies already have negotiated a good deal on the PSTN,” argues Mendler.

But it is essential for IP carriers to offer a broad product range. “Many carriers built massive pipes all over Europe,” says Current Analysis’ Kehoe. “The most successful ones were those who got away from wholesale and built a diverse revenue stream. These are companies like AT&T, BT, Colt and Equant. Others, such as Ebone and KPN Qwest didn’t manage to build a decent stream away from wholesale and as the number of carriers shrunk so did their market.”

Winning business in new markets is undeniably difficult. In the first year of Equant’s IP VPN service, only 10 customers signed up.

The market is also extremely competitive as carriers often offer IP VPNs as a loss-leader for high profile customers and plan to make their money on the value added services such as managed SAP. Carriers realise that enterprises expect low prices.

“The main driver for enterprises to move to IP is the desire to reduce cost through convergence,” says Duncan Black, director of corporate networking strategies, Cable & Wireless. And given that most enterprises have already squeezed the best price out of the incumbent for voice, IP service providers need to offer very competitive packages.

The flexibility of IP solutions means that service providers can offer their customers a variety of access methods to the network. Private lines are not always necessary as DSL, for instance, is increasingly offered with VPN tunnelling. IPSec and SSL also allow remote connection to the VPN although they can’t generally support any converged applications.

“We have had much interest in our IP Anywhere product after we added broadband into the mix,” says Martin Saunders, head of product marketing at Easynet, who has recently launched a managed DSL service. Using DSL also allows carriers to neatly side-step the stumbling block of leasing a tail-circuit from an incumbent, which can be the most expensive part of any solution.

There is little doubt that IP is becoming the favoured method for delivering complex network services. Even the incumbents with a large base of profitable Frame Relay customers are not shy promoting MPLS IP VPNs, even though they are priced some 25 per cent lower.

BT's Pannell added: "We want customers to run IP but we will provide whatever they want."

And alternative technologies such as Metro Ethernet are actually more complementary than competitive. But voice is the final piece of the jigsaw and that has to wait until enterprises junk their existing PBXes.