What's driving NGN?

Telecom Asia, Oct, 2004 by Robert Clark

"The installation of ... 'VoIP Broadband Phone Services' involves complex network settings, errors made during this process may lead to disconnection o[ your broadband service ... [this] may directly result in a reduction o[ broadband Internet upload and download speeds ... during a power outage you will not be able to make emergency calls."

The FUD factor is back. Fear, Uncertainty and Doubt is a favorite response by telcos to a looming threat. We saw it frequently a decade ago when the Internet went mainstream. The above excerpt from a PCCW letter to its broadband customers smacks of sheer desperation, yet FUD is also a signal that serious technology disruption is at hand.

Like incumbents from Tokyo to New York, PCCW is seeing a direct assault on its core local call business from consumer VoIP service. Admittedly, its sole VoIP challenger has signed up just 3,000 customers.

VoIP in the access network--as opposed to IP voice carried over a trunk backbone--is a minority service today but generating a huge amount of impact. Research house Ovum reports that NTT's PSTN revenue has fallen 15% to 20% in the last two years, primarily as a result of VoIP.

VoIP, along with broadband, IP-VPN, triple-play, fixed-mobile convergence and FTTH (fiber to the home) are essentially all signposts along different routes to the next-generation network, or NGN.

These are more than just new technologies available to operators. Underlying all of them is a shift in the way the telecom industry adopts technology and delivers services over its networks. Put another way, if telecom networks in the 1980s and 90s were all about "bigger, faster, better", the future is the less-catchy refrain of "more efficient, cheaper to run, faster to market".

The intellectual argument for NGN with an all-IP core is well-known. An operator with a single, converged IP network can deliver seamless convergent services. IP means lower capex costs and considerably lower opex. Just as important, an open, standards-based platform means service providers can introduce products much more quickly into the market and respond more rapidly to customer demands.

For start-up carriers, like Yahoo! BB or Korea's Hanaro or the US VoIP cable company Vonage, all-IP is a no-brainer. For incumbent carriers it's a dilemma. Howand --more critically--when do they take the jump?

Everyone agrees that NGN is the ultimate seamless multiservice network platform. Yet everyone also agrees it is going to take some time. No one Telecom Asia spoke to was willing to estimate when IP-MPLS core NGNs would be the norm among Asia's incumbents.

But what we can now see is that the deployment of broadband, and in particular xDSL, which predominates outside North America, has acted as an accelerant in the drive to NGN. Broadband is the enabler of VoIP, which in turn means mass deployment of IP in the core and "triple-play" and ultimately even a converged fixed-wireless platform.

Right now it is VoIP that is in play. The diffusion of IP in the access layer follows the very rapid annexation of large parts of the transmission network by IP voice. Ofer Gneezy, CEO of global IP backbone provider iBasis, estimates one in every four long-distance calls is carried at least in part as IP packets.

It certainly has the buzz. "Without any doubt, VoIP represents a big threat to PSTN operators," said a recent Ovum research note. "In fact, a threat that is comparable to or even greater than mobile substitution."

Dell'Oro Group says sales of softswitch trunk licenses, which indicate the level of core network deployments, were up 35% year-on-year in the second quarter of '04 to $528 million worldwide. "Although subscriber licenses declined this quarter, the migration of VoIP to the access edge is underway. Carriers are planning, piloting, and rolling out residential and business VoIP services including IP Centrex," said a Dell'Oro statement.

Asia is a major Dart of this. Yankee Group says Asia Pacific represents roughly 34% of the server-based softswitch investments in 2004.

The biggest VoIP market is Japan, where Yahoo! BB has been attacking NTT East and West with flat rate focal and long-distance calls for more than two years, and now has four million customers. The NTT group is betting both ways, with NTT Corn offering a VoIP service up against both Yahoo!BB and the giants NTT East and West.

But all this is much easier said than done. Incumbents are naturally cautious about VoIP, and not just for the obvious commercial and technical reasons. The rise of IP voice presents some interesting organizational challenges. The IP data section. once a smart corner of an operator's data department, is now coming to dominate the entire network division.

"Now the original switching guys are starting to take ownership of this IP network." says Andrew Coward, Asia-Pacific vice president of technical operations at Juniper Networks. "They're confronted with a network that doesn't conform in any way at all to their idea of how a voice network should behave.