A blow to convergence

Sprint's Integrated On-Demand Network (ION) was introduced in 1998 as the Holy Grail of convergence, the foundation for a packet-switched nirvana where consumers could make phone calls, send and receive faxes and access the Internet over a single phone line. Three years later, the foundation appears to be cracking.

Sprint officials confirmed this week that it is in “assessment mode” with ION due to technical glitches that have arisen in moving voice services from an IP protocol to an ATM platform. A Sprint spokesman said the company will be testing throughout the summer and depending on the test results, “we'll reset our expectations for ION as needed.”

The primary technical hurdle, according to Dan Reingold, analyst at Credit Suisse First Boston, involves serving local voice and data via softswitch technology. Issues include the integration of Class 5 switching features and the “disaggregation of voice packets from data packets at the central nodes of the network. Inconsistent platform performance caused by dropped data packets has also caused an unsatisfactory number of trouble tickets into Sprint's call centers, making it difficult to scale the project,” Reingold said.

According to Reingold, Sprint management has given ION's vendors — Telcordia Technologies, Nortel Networks, Lucent Technologies and Cisco Systems — until the end of August to improve system performance. If they don't, Sprint will postpone a broader commercial launch for the consumer and small business markets planned for the second half of 2001.

Stephen Chappell, group president of service and business management systems for Telcordia, disputed that claim, saying his company is not aware of any August mandate. Telcordia provides the Call Agent softswitch that controls call features and functions. According to Chappell, Telcordia's softswitch went into service in April 2000 and currently has an uptime record of 99.9949%.

“We're a little bit off, but it's amazingly good for this early in the technology,” Chappell said, adding that there were no known “customer-impacting” problems with Call Agent.

The problems are not only technical but financial, Reingold said. Sprint has already spent about $2 billion on the project and had planned to spend another $1 billion in 2001 with 90% of that going to packet-switched network enhancements. Those costs are degrading Sprint's bottom line. In the first quarter, ION shaved first-quarter profits by 11¢ per share. According to Reingold, if the ION project is curtailed, Sprint would save about 20¢ per share in the second half of this year and about 45¢ per share in 2002.

“All carriers are looking at where they're going to get the most bang for their buck,” said Sandra Palumbo, communications analyst at The Yankee Group. “Part of that is taking a long, hard look at Sprint ION. Does [Sprint] feel it can make the most money on the consumer side, or should it be focusing on the business side?”

Neither market segment has been quick to adopt ION services, however. At the end of first quarter 2001, among the 12 markets in which the consumer and small business ION services are available, Sprint had 3300 customers, including sales where installation wasn't complete, said a Sprint spokeswoman. The sales target at the end of the first quarter was 60,000 customers by the end of 2001.

“I don't think convergence is as huge a driving force as people thought it was going to be,” Palumbo said. “The voice call is so cheap, is having to run it over my data line necessary?”

Ken Kelly, senior research analyst at Stratecast Partners, was not surprised that Sprint would consider dumping the consumer portion of the network. “If you want to provide [consumers] with broadband access, DSL is good, but you really need to go to a [fiber-to-the-curb] or [passive optical network]-type architecture, which may or may not be economically feasible,” he said.

According to Kelly, Sprint's drawn-out merger negotiations with WorldCom last year put ION on the back burner. “For that year they just put ION on the shelf, and that certainly didn't help their execution of the deployment,” he said.

Long term, scrapping portions of ION would not only dent Sprint's pocketbook but could also hinder revenue growth in data and broadband services.

According to Sprint CEO William Esrey, by 2003 the carrier aims to get 50% of the FON group's revenue from data and broadband services, where today the mix of voice to data is 70/30.

But first Sprint has to work out the technical kinks, which analysts say could take a while. “Voice over ATM is not to the quality [Sprint] wants to see it at,” Kelly said. “The reliability isn't there yet.”

Keeping an eye on ION

June 1998
Sprint's National Integrated Services (NIS) unit launches Sprint ION, a next-generation packet network based on ATM technology

April 1999
Sprint launches a $30 million ad campaign in tandem with the release of ION 2.0, although local phone service is not yet built into the network

June 1999
The first stage of ION's consumer service is unveiled, allowing customers in three cities to get high-speed Internet, local and long distance phone service and send faxes over a single phone line

May 2000
Kevin Brauer, president of Sprint's NIS unit and the prime mover behind ION, resigns for personal reasons

October 2000
Declaring that the original ION service offerings may be too “souped-up” for at-home users, Sprint launches slimmed down versions of the DSL-based ION service — xt2, a bundled package containing two voice/fax lines; and ION Direct, an Internet access service minus voice and fax lines

May 2001
In a roadshow for the secondary offering of Sprint shares owned by France Telecom and Deutsche Telekom, Sprint reveals it is reassessing the ION project