Level 3 takes VoIP wholesale: channel partners to utilize residential broadband service

America's Network, April 1, 2004 by Joan Engebretson

Level 3, which claims to operate the world's largest softswitch network, will announce a residential VoIP-over-broadband offering later this month. Unlike others who have entered this market, the carrier will use a wholesale-only approach. The company already has serious interest in the service from channel partners that include "household names in the interexchange carrier, Internet service provider, and cable MSO types of categories," says Level 3 vice president Dennis Kyle.

Level 3's new service will resemble offerings from carriers such as Vonage and AT&T that ride on broadband DSL or cable modem connections, which could be supplied by any service provider. In addition, Level 3 will offer what it calls a "building block" service that will provide E911, local number portability and directory assistance services to cable companies or others that have their own softswitches.

"They provide Class 5 features and we provide local compliance features, and they use our network to place and receive calls," says Oliver Davis, also a Level 3 vice president.

Channel partners will be able to interface with Level 3 systems for order entry, operations support and business support. Partners also will be able to leverage Level 3 development efforts to offer value-added services such as unified messaging, find-me/ follow-me services or "other things that I don't yet feel comfortable discussing," says Kyle.

"These applications would be derivatives of what we already sell as part of our PBX or Centrex replacement offerings," says Davis. "We would scale them up or down depending on channel partner requirements." Such value-added services already are part of Level 3's enterprise VoIP offerings, which are also offered on a wholesale basis only. Supporting Level 3's new offerings is a softswitch network that already handles 30 billion minutes of traffic per month. The new offering also relies on local network infrastructure that Level 3 built to support its managed modem offering.

"We terminate traffic to every LATA," says Kyle. "We're a CLEC in 48 states and we cover 93% of the country, enabling people to place and receive calls."

This CLEC infrastructure could prove to be a competitive advantage in comparison with long-distance carriers and startup providers that often must partner with CLECs to obtain the local network infrastructure necessary to support their VoIP-over-broadband offerings.

"We built our network with universal ports in anticipation of VoIP and we built our network as an IP network," says Davis. "We have geographic coverage as well as the platform to build off of."

The wholesale telecom market generally offers the narrowest margins in an industry already plagued by falling margins--and that has caused some industry observers to question whether anyone can be successful with a wholesale-only strategy. But Davis shrugs off those concerns.

"The economics of our network enable higher margins," he says.