Applications are the real drivers of network convergence, said Dave Passmore, Research Director, Burton Group, speaking at the Next Generation Networks conference in Boston. Passmore defined three flavors of convergence that are gaining market traction now: converged transport, converged phone systems, and converged applications. Convergence saves money -- but that's beyond the point, said Passmore, because there are compelling communication features embedded in Office 2003 and even in the widely-used Instant Messenger clients. The business case for convergence includes cost reduction (toll bypass), easier administration for moves/adds/changes, improved user and staff productivity and better voice quality. Passmore also outlined other key trends driving network convergence:
- SIP is providing an easier way to tie applications and services together
- Instant Messaging (IM), presence and telephony are merging
- IP Centrex or Virtual PBX services provide a number of great Web-based features for small to mid-sized companies.
- "Bring your own Internet Broadband Access" models -- such as Vonage, Packet8 and many others -- are leverage broadband connections to gain a foothold in the residential phone market. Major carriers, such as AT&T, will offer their own consumer VoIP service. The case of Yahoo! BB in Japan is a clear warning of the major impact consumer VoIP can have on an incumbent carrier.
- The U.S. cable companies will launch VoIP services as part of their triple-play offerings in 2004.
- VoIP is also happening in WLANs. Mobile phones with Wi-Fi capabilities will hit the market soon. Public hotspots will provide another venue for toll-bypass.
- Ultimately, anyone with a Windows server, bandwidth and some media gateways can become their own phone company. The new phone company could include cable MSOs, IM providers (AOL, Yahoo! and MSN), Vonage or others.
In the very long run, convergence is going to occur, said Dave Schaeffer, CEO of Cogent Communications, but it will not happen quickly. In fact, network divergence continues to make economic sense for the ILECs, said Schaeffer, mainly because voice and data networks have very different needs. Voice is the only application that guarantees significant carrier revenues and yet it requires very little bandwidth. More importantly there are about 23,000 ILEC central offices in the U.S. with Class 5 switching installed, representing n massive installed base of equipment that is mostly fully depreciated, fully-functional and yields 99.999% up time. He estimates the average TDM switch is less than 10 years old and is fully-capable of delivering over 150 features sets -- more than most people can use. In terms of market dynamics, Schaeffer said voice unit growth is negative, total voice revenues are declining, and costs of capital for telecom operators are rising. As a result, new capital spending to rebuild the networks will come more slowly than before. Market conditions indicate that it will be very difficult for incumbent carriers to invest in new packet infrastructure, which would only serve to compete with their existing, fully-paid-for, TDM switches. Schaeffer recommends that service providers focus on what they do best. For data bit-haulers, the goal is to be the low-cost transport provider. For incumbent voice carriers, Schaeffer believes their greatest asset is the huge base of existing customers tied into the existing TDM infrastructure. In the long run, Schaeffer concedes that voice will be merely one more application on the data network -- but then in the long run, we are all dead.
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