SBC, QWEST PURSUE VoIP MIGRATIONS

SBC Communications' and Qwest Communications' recent forays into the voice-over-IP market marked not only significant technology shifts for both carriers, but also some aggressive moves to defend against a continued fall in traditional access line revenue.

The two carriers, however, are approaching VoIP in very different ways. Qwest is at the beginning of a process that eventually could lead to replacement of its Class 5 switches with softswitches and media gateways, but with much of its current access infrastructure intact. SBC, meanwhile, is building a parallel network—it is targeting business customers nationally for the first time but keeping its new IP architecture completely separate from its legacy network.

Qwest, which has been providing wholesale VoIP services using Sonus Network's equipment since 2001, signed a deal with Lucent Technologies to provide softswitches as part of a three-year maintenance program for its Class 5 switches in mostly rural markets. Under terms of the deal, Qwest will use Lucent's 5E-XC switch as part of a cap-and-grow strategy that initially will keep its existing circuit switches in place. The company plans to eventually use Lucent's new Intelligent Media Gateways in some smaller markets as Class 5 replacements, serving those markets off existing circuit switches or new softswitches, according to a Qwest spokeswoman.

{Migratory patterns} RBOC Status BellSouth Begins rollout targeting small businesses in 2004 SBC Has been offering some retail service for most of the year; using Level 3 to expand offer in 2004 Qwest Has been offering wholesale since 2001; will launch voice over DSL in 2004 Verizon Launching retail service of voice over DSL in 2004 Source: Company information

Before that deployment begins, however, Qwest will offer VoIP as part of a DSL package in Minnesota, in what is as much a game of regulatory chicken as it is a market test of new service. Qwest has been locked in a public and heated battle with VoIP providers, particularly Vonage, over whether the service falls under traditional telecom regulations.

During the company's third-quarter conference call, CEO Richard Notebaert made a point of noting that if companies like Vonage can provide broadband voice and not fall under traditional telecom regulation, then Qwest will do the same.

“If VoIP is truly an information service, as the federal district court in Minnesota and two other district courts have said, then many of the taxes and fees traditionally applied to telecom services would not apply,” Notebaert said.

Though he declined to provide details, several Qwest sources have said the company will use Sonus' equipment.

“It's a fairly straightforward architecture,” Notebaert said. “It's not five nines. It doesn't have that guaranteed quality of service that we do. Customers have basically said, ‘For the convenience of an application or for a price point, I am willing to forgo traditional circuit switch or regulatory type services.’ All we are doing is answering our customers' requests.”

Meanwhile, SBC appears content to take a more tepid approach to packet switching. While it plans to launch its own softswitching platform at some point, its first move came last month with the launch of a national VoIP service using Level 3 Communications' (3)Tone service to direct voice traffic from the core of the network. SBC opted to stay away from the central office approach many carriers are adopting and instead go with a fully hosted, network-based IP portfolio, leveraging its OC-192 MPLS-powered backbone to offload all packets in a centralized location.

But SBC officials were quick to point out that they aren't selling an all-or-nothing package. SBC expects many customers, especially larger enterprises, will want to phase in next-generations services gradually, said Brett Theiss, director of IP services for SBC.

“One of the main attractions for a new customer is they won't have to forklift that frame relay network to put in a new one,” Theiss said. “They can pick and choose at which locations they want to use the new services.”

The packaged IP move also will position SBC among nationwide IXCs for the first time. While the carrier initially launched service in 18 in-region markets, Theiss said SBC would add 15 out-of-region markets by year-end and another 42 markets six months later.

Though SBC hopes to attract large enterprises wanting to connect branch offices with IP service, the carrier initially sees the most promise in the small and medium business market. Those companies are more willing to make a full-scale conversion to IP and reap the benefits of the new enhanced services the portfolio offers, said Laura Thompson, vice president of corporate marketing for Sylantro Systems, the vendor providing the IP-based voice applications servers to SBC.

“The low-hanging fruit will be the small businesses—those with under 500 employees,” Thompson said. “Seventy percent of all businesses have under 100 employees. That's quite a market SBC can tap.”

Both SBC's and Qwest's moves, however tentative, mark significant steps for the carriers and mean much for the chosen vendors. For Lucent, which at one point appeared to be almost out of the softswitch market, the Qwest contract revives hopes that it can maintain its traditional role as primary vendor in the central office. Indeed, its incumbency likely helped, according to Joe McGarvey, senior analyst of carrier infrastructure for Current Analysis.

“We think this is very important for [Lucent] to protect their installed base,” he said.

In many of the likely initial markets, which Qwest would not specify, the carrier has numerous Ericsson switches that are difficult to support. The move to Lucent not only gives the vendor renewed market share, it also sets the vendor up for future sales. Lucent is counting on the ability to offer new revenue enhancements, not just operational cost savings, to sell softswitches.

“Where we're going to find success is providing a business case that shows how they can deliver new revenues,” said Roger Heinz, vice president of Lucent's convergence solutions business unit.

Sylantro, meanwhile, is expecting to see more immediate returns from SBC's broad national deployment. It charges for its applications servers on the basis of overall users. The more penetration SBC pursues, the more Sylantro benefits.

For Sonus, which counts Verizon Communications, Deutsche Telekom and AT&T among its customers, Qwest's Minnesota service could further bring it out of the pack of softswitch upstarts.

“We're already carrying 5 billion minutes of VoIP traffic per month,” said J. Michael O'Hara, vice president of marketing for Sonus. “We're in mainstream deployment now.”