|IP at the Core of Success
|Data Access; SPA Enterprises Ltd
New companies have to offer better service at lower rates than incumbents to attract subscribers. By using the Internet Protocol (IP) technology at the core of a network and Time Division Multiplexing (TDM) technology at the edge, new operators in a market can set up a modern network at relatively low cost and provide consumers a communication platform that can be scaled up with ease. IP based networks can challenge the quality of the older technology deployed by the incumbent.
Large swathes of the developing world are fast catching up with the developed world in the number of telecommunication operators per country. As governments who realise that the incumbent†usually state-owned† operators are no longer able to satisfy demand open up communication markets, and more and more private companies are stepping in to fill the gap. These private companies face a multitude of challenges. Before the market expands, they have to start by taking consumers away from the well-entrenched incumbent. To do that, they have to offer communication services that are at least as good, and at lower rates. To do this, the new entrants need a combination of technology and business savvy that can quickly take market share away from the incumbent and bring down prices to help consumers. At the same time, the new entrants can hope to start making money much sooner than though possible by traditional telecommunications analysts. At the heart of the strategy is technology that supports the business case of the new entrant. In the case of a long distance carrier, today this heart is definitely the Internet Protocol (IP) technology that is able to carry both voice and data. Using this approach, for example, my company, a player in the international long distance market, has taken away over 35 percent of the incoming traffic to India from the incumbent operator within six months of the launch of its operations in August 2002. IP at the core of the network gives a new entrant to the telecommunications market the ability to set up a modern network at relatively low cost, to provide consumers a communication platform that can be scaled up with ease, and to challenge the quality of the usually older technology deployed by the incumbent operator. For a long distance telecommunications carrier, what are the specific advantages of the IP technology over the older Time Division Multiplexing (TDM) technology? * The IP technology allows multiple services on a single platform, being easily switchable between voice and data transmission; * It allows a programmable soft switch approach; * The network built with IP technology at its core is more robust than the TDM network and allows better performance; * It enables better route management; * It means a lower investment per point of presence (PoP); * It leads to lower carrier interconnect costs; * It uses logical interconnects for low traffic and physical interconnects for high traffic, thus allowing the operator to optimise costs, and provide a higher quality of service even when traffic volumes reach their peak; * It allows the operator to use the public internet as a final fail-safe backbone to the managed network; * It is faster, easier to configure and to deploy; * The network can be managed through a web interface, which means fewer people can manage networks – even those located somewhere else. In combination with having IP technology at the core of its network, the new telecommunications operator – especially in the field of long distance telecommunications – should deploy packet switch technology as opposed to circuit switch technology. The advantages of the packet switch technology are: * It allows virtual rather than real interconnect; * It provides lower transport costs; * It allows “switchless” operations for low-cost redundancy; * It enables quicker recovery from any disaster as opposed to circuit switch technology; * It is able to interface with both TDM and Global System for Mobile Communications (GSM). Till today, no one can run a network of any size with IP technology alone – that network will not be able to interconnect with the many others, that still run on TDM technology. So for a new entrant, the network architecture must consist of IP at the core and TDM at the edge – that will give a new operator the best of both worlds. The other big advantage of rolling out a telecommunications network with IP at the core is that the equipment is available at relatively throwaway prices in the global market today, thanks to the dotcom bust. All one has to do is to shop in the US market, where bargain-basement sales of IP network equipment have become the norm. This basic technology and price advantage, though, has to be complemented by business savvy in an area where speed is the norm – and this is the area of interconnection agreements. No telecommunications operator – especially in a developing country – can work without a whole gamut of interconnection agreements with global telecommunications carriers. This is an area where the incumbent operator of the country has a natural advantage, because it has had these agreements in place for years. The new entrant must offset this advantage by offering lower rates; the new operator willing to do so will usually find that he is still left with a reasonable profit margin. But the interconnection agreements must be done quickly, almost literally before the incumbent operator has realized what it has been hit with. To make the agreements really worthwhile for the global carriers, the new entrant must create route diversity so that more interconnection points are available. At the same time, a new company concerned about its bottom line must not enter into more interconnection agreements than it can possibly handle – the name of the game is operating on an incremental basis. A new entrant in the telecommunications carrier business can only take on the incumbent by cutting rates. This generates higher volumes of traffic – consumers find that talking and exchanging data is now cheaper, so they use the telecommunication links more. And the new operator can reasonably expect to get a significant share of this new and larger market. Then, the new entrant must be prepared for the inevitable reaction from the incumbent – who will also cut rates to the level originally offered by the new entrant. The entrant must then cut rates further to retain its traffic volumes, till the point where the incumbent just cannot compete with it on the basis of price. This second step may sometimes hurt the new operator as well, but he has to be prepared for it, and the revenue he had gathered by taking market share away from the incumbent in the first place should be enough to offset any temporary losses in this second stage. A new entrant in the telecommunications carrier business has another big advantage over the incumbent – an older operator is usually sitting on a large amount of bandwidth that it owns – partially or totally. This bandwidth may be through undersea fibre optic cables or fibre optic and coaxial cables on land or transponder space on satellites. But in all these cases, the hire charges are going down all the time, as the world realises that there is far higher supply than demand for bandwidth today. So for the new entrant, it makes sense to enter into relatively short term rent agreements with bandwidth owners, with the full expectation that the hire charges will keep going down every time he enters a new agreement. For a new entrant, the first six months of operation are critical. If he has captured a reasonable share of whichever part of the telecommunications market he is in within this period, he can reasonably expect to at least retain his market share, if not expand it further. He will have to be prepared for further price cuts, but as long as the new operator is entrenched in the market within the first six months, he can ride the new price cuts because the overall traffic volume will increase. In many of the large developing countries, the demand for telecommunication services is regionally skewed. In most Latin American countries, the bulk of the demand comes from urban areas. In China, the demand for telecommunications services of all kinds from the more developed eastern seaboard far outstrips the demand from the western interior regions. In South Asia, regions that have larger proportions of their populations working abroad show higher demand for voice services – as these people call home. In the case of data services, there is a strong skew in favour of urban areas. A new entrant in the telecommunications carrier business must be aware of these regional skews, and must ensure that his network is at its best in the areas where the demand is highest – that is the way to capture market share. And especially for these high-demand segments of the market, but also for the market as a whole, a new telecommunications carrier must ensure that has multiple access routes to each part of the market – if an optic fibre link breaks down, there must be a satellite available to back it up. Incumbent operators – especially state-owned ones – who have been used to working in a monopoly market rarely have adequate back-up options in place. So, a new operator can generate immense goodwill – that leads to more business – by having these back-ups in place. It is important for a new telecommunications operator not to get carried away by the promise of data transmission. All over the world – but especially in developing countries – voice transmissions still take up most of the telecommunications network. Most telecommunications carriers will find that it accounts for over 80 percent of their revenues. In almost all developing countries, teledensity is far higher than computer density. And even in more developed markets, it has been found that mobile consumers – for example – prefer voice to data transmission. One big problem with data transmission today is that while the technology to transmit data abounds, the content of the data that is to be transmitted rarely matches up to the expectation. Overall, new telecommunications operators especially in developing countries – will do well to focus their energies on developing voice-friendly networks. Of course, there is always the possibility that data transmission will pick up. Then, having IP technology at the core of the network will allow the telecommunications operator to seamlessly integrate the two forms of transmission – another huge plus for the deployment of a network with IP at the core. Of course, there are problems with IP technology as well. The main problem is the lack of a globally accepted standard. This leads to problems of interoperability, especially when one Voice over Internet Protocol (VoIP) network is trying to interconnect with another VoIP network. As a result, most vendors of telecommunication network equipment, today, still try to sell TDM-based networks that have IP as an add-on. This, on the other hand, means consumers are denied the benefit of lower rates and better telecommunications services that are available through an existing and proven technology, simply due to lack of standards. For the sake of faster development of telecommunications progress, it is now imperative for organizations like the International Telecommunications Union to develop IP technology standards and especially VoIP standards – that are globally acceptable.