NGN Ventures: Next-Generation Voice

IP telephony services are not really about cheaper communications but about integrated applications, said Jerry Cady, CEO of Pingtone Communications, speaking at last week's NGN Ventures conference in Burlingame, California. Whereas traditional voice service providers were essentially transport providers and termination providers, the new generation of integrated communications providers are essentially "application providers." By this he means that the new service provider is unbound from the physical, switching network. Traditional carriers were dependent on the telco switch vendors to introduce new features or services. The new generation service provider are much more free to develop new applications on their own. Pingtone provides flat rate, enterprise IP telephony services using softswitches, media servers and application servers. Cady said that customers have not really been attracted to IP telephony per se, but their interest increases when the sales pitch turns to web conferencing, secure instant messaging, email + voice mail integration. Pingtone prices range from $50 to $70 per desktop per month including national local and long distance voice service. To ensure quality, the company measures jitter, packet loss and latency on each call and presents a score back to the network operations center. Since re-launching its service in November 2002, Pingtone has added 3,000 desktops to its network. By the end of the year, it hopes to be adding 2,000 new desktops per month.



Voice services as a big opportunity for cable operators, said Mark Galvin, Chairman of Cedar Point Communications. In fact, cable operators around the US have consistently achieved 30% to 40% penetration in the earliest markets where residential telephony service is offered, according to Cedar Point. The problem, according to Galvin, is that the initial cable telephony deployments have used a legacy circuit switching architecture requiring large Class 5 switches. As a result, they are burdened with the same high total cost of ownership and slow feature set development as their ILEC peers. Galvin said the MSOs have since started to explore softswitching architectures, but these too appear to be difficult to deploy and too complex -- often 5 vendors are required just to implement the voice signaling and switching. Galvin argues that a simpler, more manageable network could be built by using an integrated, Class 5 packet switch. Cedar Point's SAFARI C³ Media Switching System combines attributes of Class 5 voice switches with VoIP. The Cedar Point platform integrates a Call Management Server, Media Gateway, Media Gateway Controller, Announcement Server and Signaling Gateway into a single chassis capable of serving up to 100,000 lines. Cedar Point was founded in September 2000 and has raised $45 million to date.



The next phase of computer-telephony integration will be to make network-centric applications available on IP phones, mobile phones or other light client devices, said Goutham Rao, Director of Technology at Net6. His company offers a transformation gateway that solves the problem of application delivery to different types of client devices (IP phones, PDAs, etc.) The Net6 gateway handles presentation logic, interaction logic and session management for displaying data in the various formats. Examples of this integration include a hospital that makes patient data available to doctors and nurses via 802.11-connected PDAs. Other vertical industry applications could include hotels that make a Guest Services menu available via IP phones in each room, or an RBOC that delivers a DSL provision application via mobile phone to its field service technicians. Net6 is selling its gateway through Avaya, Cisco, Nortel, Mitel, Siemens and others. Net6 was founded in September 2000.



Smaller enterprises will be attracted to the new wave of hosted IP telephony services, said Thomas Anderson, Internetworking Solutions VP for Lucent Technologies' Office of the CTO, much like they were interested in conventional Centrex services. Medium to large enterprises will likewise be attracted to IP PBXs. Anderson observed that the proliferation of wireless voice services and other means of access means that ILECs are likely to face tough times ahead. One way to address the challenge is to build bigger pipes to their customers.



Revenue from the new generation of IP voice service providers is not great at the moment, said Promod Haque, Managing Partner with Norwest Venture Partners. But as the revenues grow, the ILECs will need to respond. Whether this happens in two years or five years remains to be seen. The big challenge for start-ups, said Haque, is how to scale the business. An absence of liquidity in the public markets requires companies to get to break-even ASAP. They need capital to grow their business and generate the revenues, but over funded start-ups ensure that nobody will make any money. In the current climate, Haque believes a software start-up should not exceed $25 million in funding, a hardware start-up should exceed more than $40 million in funding, and a service provider start-up should not raise more than $60 million. Otherwise, the economics simply won't work.