E911 DECISION ADDS MORE FUEL TO VOICE-OVER-IP MARKET BLAZE

Last week's decision by the FCC to impose immediate requirements for voice-over-IP service providers to support E911 service only added to the growing momentum behind VoIP's maturation as a replacement for traditional voice service.

While much expected, the FCC's ruling was abrupt in its timing — the federal regulators imposed a 120-day deadline for VoIP providers to get their E911 houses in order, which could force some smaller players to buy a more expensive, short-term solution, driving up their low-cost offerings and signaling the end of “cheap and dirty” VoIP.

In the meantime, CLECs, cable companies and enhanced service providers are all moving rapidly to capitalize on the window VoIP opens to both the business and consumer markets.

“VoIP is maturing rapidly for a number of reasons,” said Keith Nissen, senior analyst with In-Stat. “The FCC has made it known that VoIP is the direction [in which] they want to take the industry. The decision to phase out UNE-P has really put the wireline CLECs on the defensive, and UNE rates are going up rather than down, so the pressure is on the CLECs on the business side to differentiate themselves. They now have to compete because the RBOCs are out there with integrated voice data services themselves.

“The CLECs have grasped onto VoIP as the thing that is going to differentiate them, and they are aggressively marketing integrated transport with VoIP.”

Combine that with a major enterprise push into premises-based VoIP in 2004 and the cable industry's aggressive selling of digital voice — much of it VoIP-based — and you have a service that has come of age even faster than expected, Nissen said.

In the near-term, the VoIP players banking on winning customers with low-cost, best-effort toll replacement services have been dealt a serious blow, said John Muleta, the former head of the FCC's Wireless Telecommunications Bureau and now a private attorney and co-chair of Venable's Communications Group in Washington.

“They will have to start using CLECs to get to the level of performance required in 120 days,” he said. “It's virtually impossible for a start-up that wants to provide national service to get connects to every [public safety access point] in the country on their own, when there is no national standard for doing that. As an interim step, they might have to go to a solution that is a lot more expensive.”

Rising costs for VoIP providers likely will mean rising prices for VoIP users, although no one was talking about that last week. Vonage, the largest independent VoIP provider, announced it had reached agreements with two more former Bell companies — SBC Communications and BellSouth — to buy access to their E911 infrastructure. Competitor SunRocket said it would have E911 in its coverage area within 30 days.

More than likely, new opportunities will arise for companies such as TeleCommunications Systems, which provides wholesale E911 for the wireless industry, and for national CLECs to provide an E911 infrastructure for the VoIP industry, Muleta said.

Level 3 Communications has built a national network with connections into 67% of the country's 6000 PSAPs, said Charles Meyers, group vice president of marketing, and is constantly adding to that number. The company already provides VoIP infrastructure for many national players, including America Online.

Both Muleta and Tim Lorello, chief marketing office of TCS, said, however, that creating true E911 coverage for VoIP providers is a more complex process that the FCC didn't fully address in its order. “The three main barriers we've seen are access to the E911 infrastructure, funding and liability,” Lorello said. “The FCC tried to address the first one — they said that incumbents have to make their E911 infrastructure accessible, but they didn't say affordably or at reasonable cost. That could be a problem.”

The FCC passed the ball to the states to address funding of E911 for VoIP, he added. Currently, wireline and wireless phone users pay a monthly service charge, which is collected by the states and remitted to the county governments to fund E911, Lorello said. States will have to act on their own to collect fees from VoIP users under the FCC plan.

The federal regulators also didn't address indemnification of VoIP providers to protect them from liability for E911 failures as current service providers are protected, he added.

While all of that is transpiring, however, the cable industry is adding more than an estimated 20,000 VoIP subscribers a week to their service, more commonly called digital phone, that already includes E911 capability. And new service providers are addressing the booming enterprise market.

Companies such as AccessLine are packaging applications with VoIP service to help businesses, including IBM and Sun Microsystems, use VoIP to connect their smaller offices to corporate headquarters and make the services such as voice mail and e-mail appear seamless. Working through resellers such as Savis, AccessLine is now taking those hosted service capabilities down market, reaching into the small and medium-sized business segment and finding an audience hungry for service.

“Savis, our reseller, is having success in SMB space,” said Kent Hellebust, chief marketing officer. “Small companies don't have the luxury of an IT staff. They know what they are paying for phone service and would like to reduce the cost. With a hosted service, we can get them turned up quickly, and we take care of all of the technical complexity.”

Firms such as LiteScape are developing application platforms that marry the capabilities of Cisco Systems and Avaya IP-PBXs with wireless systems and common desktop applications to make it easier for businesses to use VoIP to improve employee productivity (see story on page 28).

“We're seeing a tremendous amount of interest, from banks, schools, financial institutions,” said Farzad Naimi, founder, chairman and CEO of LiteScape, which counts SBC among its distributors. “There are great opportunities for improved customer service and for better productivity, and companies are beginning to see that.”

All of those involved agree that VoIP is just at the beginning of its innovation cycle, even though it is moving quickly out of the low-cost, best-effort realm in which it initially took hold.

That doesn't mean low-cost VoIP is going way, however. In fact, one new company is counting on economies to fuel its unusual approach to VoIP. Mint Telecom, a self-funded California start-up, will launch its service on June 1 and is billing itself as a VoIP offering that doesn't require a broadband connection.

Initially, customers sign up for a Mint account and are assigned a phone number. To call long-distance, including internationally, they log onto the Mint site and, through their account, designate any number in the world that they wish to call.

“Then when they dial their assigned number, the call is forwarded by one of our servers to the number they have entered, and it is carried like a local call,” said Jason Jepson, Mint co-founder.

Within a few months of launching, Mint will enable its customers to set up a frequent calling list so that they can essentially speed dial up to 10 numbers, all by calling their local number.

“It's cheaper than Vonage, and you aren't making the call through your computer, you are making through your home phone, so the quality is better,” Jepson said.

Recent steps in VoIP's migration to support E911

JANUARY

Level 3 adds E911 to its wholesale VoIP services

FEBRUARY

Houston resident Joyce John tries to call 911 on a VoIP line as her parents are being attack by home invaders. A recording tells her VoIP isn't available on the line.

MARCH

Texas attorney general files suit against Vonage in the Houston case, saying the company must clarify its lack of support for emergency services.

APRIL

At VoIPossibilities show in Dallas, E911 is listed as the biggest concern. Verizon adds E911 as a wholesale service for VoIP providers.

MAY

The FCC rules that VoIP companies must support E911 services and gives them 120 days to do so.