Voice over IP VPNs: The public and private networks converge

Carrier-hosted voice over Internet protocol (VoIP) virtual private networks (VPNs) allow enterprises to cost-effectively converge their voice, data and video traffic onto a single, carrier-managed and quality of service-enabled IP infrastructure. Today, a handful of carriers are rolling out this new offering to their enterprise customers, with good success. However, there still are a number of carriers standing on the sidelines, reluctant to get into the hosted VoIP VPN game for fear of losing lucrative primary rate interface (PRI) revenue. 

This is not a good stance to take at the moment, given the current technical, regulatory and market trends that all point towards making this new service an essential offering in a carrier's portfolio. Carrier-hosted VoIP VPNs will allow carriers to retain and grow revenue as enterprises transform legacy networks to VoIP, making VoIP VPNs as important to carriers as PRI is today.

Before we look specifically at the technical, regulatory and market trends driving VoIP VPN adoption, we need to first understand what a typical multi-site enterprise network looks like. The diagram below is a simplified representation of a legacy enterprise network in which leased PRI lines are used to connect major sites, and separate PRI connections are used to connect to the PSTN. In this configuration, the enterprise typically purchases a number of different services from different service providers. 

1. A PRI for direct inward dial connections to the local PSTN from the ILEC

2. Outward dial trunks that connect to an IXC for long-distance services

3. Data access facilities from an Internet service provider

There is much incentive for the enterprise to look to a single carrier who can provide a less costly, more efficient solution that is easier to manage. Technical, regulatory and competitive trends are driving the evolution of this network to a simpler solution.

Enterprises are moving quickly to VoIP. In fact, an April 2003 report by Probe Research predicts that by 2007, 49% of all new PBX lines will be IP PBX lines. Today most deployments of IP PBXs interface to the PSTN via conventional TDM PRI trunk gateways. Multiple transcodings back and forth between TDM and VoIP add distortion and delay, which are the enemies of voice quality in VoIP networks. In the future, as enterprises more widely deploy IP PBXs they are going demand packet interconnect to the PSTN to ensure voice quality. 

From a regulatory standpoint, Bill 271 allows ILECs to provide long-distance service and is the beginning of a trend towards the superclass carrier. Superclass carriers bundle services in an effort to capture the total the enterprise telecom budget. They provide voice, data, long distance and act as an ISP. With the emergence of the superclass carrier, the requirement for multiple access facilities will gradually disappear and the demand for converged access by enterprises will only grow.

Enterprises who want to purchase a service bundle will demand the efficiency that converged access provides. A converged access strategy makes sense when you consider that many enterprises may be over-trunked. In a simple example, an enterprise with offices on two coasts may have radically different calling patterns depending on the time of day. At mid-morning and early afternoon, the traffic may be from one office to another, while at 5:00 PM everyone is calling locally to determine who will pick up the kids or grab dinner on the way home. Converged access can result in more efficient use of facilities eliminating the need to engineer different facilities for different peak busy hour usage. With converged access, the enterprise sends its VoIP traffic to the IP cloud and the carrier routs it as required. Carriers responding to an RFP offering three facilities when the competition is doing it over one will be at a competitive disadvantage. VoIP VPNs are an important factor in ensuring the carrier isn't relegated to the role of providing dumb pipes or, even worse, losing the business to a competitor with a better offer. 

Ironically, the declining cost of long distance works in the carriers' favor when offering a VoIP VPN service. Enterprises created private networks to decrease long distance costs between remote locations. In the last decade, long-distance charges in the U.S. have decreased by over 50%. With large enterprise able to purchase domestic long distance for under 4 cents a minute building a private network strictly for toll bypass is becoming questionable. Private networks can be expensive to build and maintain, and they only handle calls within the enterprise. A carrier can provide "on" and "off-net" service. Administering and maintaining dialing plans on a private network when sites are added is a labor intensive activity. Multi-site enterprises can benefit from the centralized routing and dial plan management that a carrier hosted VoIP VPN service provides.

Carriers need to persuade their enterprise customers who are considering creating a private VoIP network to carefully crunch the numbers. Nortel Networks studies have shown that the enterprise business cases for building a private VoIP network is highly sensitive to the price and volume of long-distance minutes. Carriers should encourage their enterprise customers to look closely at the assumptions they are making about the volume of long distance calls and cost of long distance minutes. Careful analysis and modeling with "what if" scenarios that consider changes in traffic volume and declining long distance rates will often reveal that a carrier hosted VoIP VPN provides better value at lower risk for the enterprise.

An evolved network where the carrier provides VoIP VPNs will be characterized by a single converged access pipe to the enterprise connecting them to a carrier-grade, multi-protocol label switched (MPLS) IP network. A carrier grade softswitch acts as gatekeeper utilizing H.323 or SIP call control to control IP PBX Gateways. Legacy PBXs can connect via transitional gateways that provide a PRI interface. If the enterprise utilizes Centrex for voice service at remote sites, they can be integrated into the hosted VoIP VPN solution. Existing Centrex lines can connect to a TDM to IP media gateway or be migrated to Centrex IP.

The technical requirements of a carrier-grade softswitch are more rigorous and require a more extensive service set than is typically found on most current enterprise gatekeeper solutions. The carrier-hosted service is a next-generation PRI replacement and it needs to support all the services that are supported today via PRI, including E-911, local number portability, direct inward dial, etc. 

As can be seen in the above diagram, a hosted VoIP VPN service can greatly simplify an enterprise network, reducing the number and type of access lines required at each site and converging "on-net" and "off-net" voice and data traffic onto the same facilities. Multi-site enterprises can save up to 35% as a result of network simplification, elimination of leased lines and centralization of dial plan management.

Carriers providing hosted VoIP VPNs can achieve a competitive advantage by offering richer services and more efficient facilities utilization to their enterprise customers. In addition, a single IP pipe into the enterprise gives the carrier the opportunity to increase service revenues by adding additional multimedia services such as video, enhanced conferencing, presence and broadband voice for teleworkers to the service mix.

The trend towards VoIP in the carrier and the enterprise, coupled with a changing regulatory climate, will result in the creation of a new class of PSTN access that eventually will supersede today's TDM PRI access. While some carriers may be concerned about cannibalizing existing PRI revenues, the reality is that a hosted VoIP VPN service offering opens opportunities to sell a whole new suite of revenue generating services to the enterprise.

John Squizzato is senior manager of carrier VoIP marketing at Nortel Networks and can be contacted at squizzat@nortelnetworks.com.

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