|Latin America 2006
|Migrating to IP
|CEO and President
Eran Ziv is the CEO and President of Teledata Networks. Mr Ziv has over 20 years of high-tech and telecom industry sales, marketing and management experience. Prior to joining Teledata Networks, Mr Ziv held CEO positions and additional senior management roles in several high-tech companies in the fields of telecom and data communications. Mr Ziv holds a Bachelor of Science Degree in Civil Engineering.
The traditional copper-based switched telephone networks are inefficient, costly to operate and maintain and do not provide the flexibility to offer a wide series of services that new competitors in the market are offering. Operators with substantial investments in legacy networks are beginning to migrate to IP-based networks, often using fibre for all except the final access. This reduces costs and permits broadband-based value-added services such as VoIP and IPTV to compete with the CLECs and cable companies.
Latin America is emerging as one of the world’s fastest growing markets for broadband uptake. The region’s telecom industry is composed of a diverse communications infrastructure at different stages of migration to broadband/IP technologies. Geography, population distribution, regulation, competition and social-economic development are all vital issues determining the future of IP in the region. However, the key factor in migration to IP is finding the right approach for transforming the legacy access network infrastructure. The Latin America telecom market Telecom industry analysts such as Research and Markets, a leading international industry research organization, predict this year that Latin America will be one of the quickest growing markets for broadband uptake and the implementation of IP-based solutions. According to the International Monetary Fund, growth across Latin America is projected to continue at a solid pace throughout 2006, driven by both external and domestic demands. As the global economic upturn continues, Latin America is poised for change. The Latin American marketplace began to evolve in the late 1990s. New technologies, beginning with the Internet and evolving into VoIP, Voice over IP, which were transforming business and consumer markets across the US, Western Europe and the Far East, had not yet reached Latin America. However, the advantages of these technologies appealed to Latin American industry decision-makers. Therefore, some highly regulated Latin American countries, like Brazil, began to replace their monopoly markets with newer, more flexible, unregulated business models, creating competition and new business challenges for the telecom sector. In 2004, 74 per cent of Latin American ILECs, Incumbent Local Exchange Carriers, were already either partially or fully privately owned. Close to 50 per cent of member states had opened their wireline telecom businesses to competition. Additionally, more than 75 per cent of all mobile and ISP, Internet Service Provider, business sectors are now competitive. Latin America today is striving to catch up with the best offerings of the global telecom environment by making an effort to migrate to IP. For example, according to Alex Zago, an industry expert at the market research firm of Frost & Sullivan, the VoIP market is in the process of creation right now. Mr Zago predicts that penetration of broadband VoIP in Latin America will expand from 1.5 per cent in 2005 to close to 25.5 per cent in 2011. These figures reflect an annual growth rate of 85.2 per cent. Translated, this means that the Latin American market, which was valued at practically nothing in 2005, will jump to $1.1 billion by 2011, and these figures relate just to VoIP line growth and corporate PBX-to-IP-to-phone. Maintaining and replacing existing POTS/TDM, plain old telephony/time division multiplex – based infrastructure is one of the major challenges facing Latin American players. It is not realistic, nor is it possible, to discard copper fixed-line infrastructure overnight, as it forms the main backbone of telecommunication networks across Latin America. Migration to IP must be done in such a way that incumbent operators are able to maintain the economic benefits of their historical legacy-based business, while creating new growth with IP/NGN, Next Generation Network, based solutions and services. The Brazilian market In order to enrich the discussion with a more specific focus, we will offer a spotlight on Brazil as an example of how a major Latin American nation is approaching migration to IP. According to PriceWaterhouseCoope (PWC), Brazil has 3.3 million broadband subscribers in 2006 – a substantial increase from last year’s two million subscribers. By the end of this year, Brazil should account for 49 per cent of the total expected VoIP market in Latin America. PWC also predicts that in 2009, Brazil will have 8.4 million broadband subscribers. Geographical and regulatory factors One of the largest countries in the world, Brazil also has South America’s greatest land mass and a population exceeding 185 million people. This geographical configuration serves as an accelerator for the migration to IP, as IP-enabled services meet so many of the needs of businesses operating across long distances. Conference calls over IP, long-distance, no-charge VoIP calls, line number portability and VoIP phone adaptors are all in especially high demand in Brazil. Brazil’s population is irregularly dispersed: the Amazon Basin, which constitutes 45 per cent of the country, contains only seven per cent of the population, while the ‘Golden Triangle’ – the cities of São Paulo, Rio de Janeiro and Belo Horizonte – which constitute only 11 per cent of Brazil’s land, are inhabited by close to 43 per cent of the population. Combined mobile and fixed teledensity in Brazil is approximately 69 per cent. Only 19.3 per cent have fixed-line access, but 49.5 per cent – more than 93 million – of Brazilians have mobile phones. Still, it is obvious that the country has significant market penetration potential. It is important to note that there are more mobile phones in São Paulo than in Paris, and that pre-paid calling is popular with low-income consumers in Brazil. Traditionally, Brazil’s telecom market was divided by Anatel, the country’s regulatory agency, into five distinct regions, with each region dominated by a long-time incumbent service provider. In January 2006, the market opened up to competition, so that each provider could deliver services to any region in Brazil. IP facilitated this revolution with suitable solutions for the new situation. Carriers who wanted to provide services in a new region chose the most cost-effective solution – using the ADSL, copper-based broadband infrastructure of a competitor to provide IP-based services. In this way, carriers avoided the expense of installing additional infrastructure in a new region. Such a solution is also cost-effective for providing services to sparsely populated areas where it would not be lucrative to install entirely new equipment to provide services to a limited number of subscribers. Economic and social benefits of IP Communications, and the access to knowledge this brings, is a power which can revolutionize the lives of those living in Latin America – from the low-income inhabitants of rural areas who will be able to access better educational and healthcare services, to small businesses wishing to compete regionally or internationally at low cost. Broadband/IP deployment empowers both businesses and consumers, resulting in tremendous social and economic benefits, including: 4 increased worker productivity resulting in job creation and higher salaries; 4 greater selection of telecom service to consumers at lower prices; 4 increased demand for products, such as computers entertainment services; 4 modernized state services, such as healthcare and education; and 4 overall growth of efficiency and greater availability of a wide variety of goods, services and information. More specifically, migration to IP allows for the creation of a host of social and economic applications in Latin America, including telemedicine, distance learning and e-commerce. Service demands Beginning in 2002, Brazil has been undergoing a move from dial-up to broadband. Most cable TV companies provide Internet access, and ADSL has emerged as the access technology of choice, comprising close to 82 per cent of the broadband market. For example, VoIP services account today for almost 36 per cent of Brazil’s international calls, and the country has the fourth largest base of Skype users in the world. The chart below indicates the rapid growth of the market in this dynamic early adopter country. Service provider migration paths The CLECs (Competitive Local Exchange Carriers) in Brazil can be seen as one of the growth engines for IP in Brazil. GVT, for example, is a CLEC that started its activities with no legacy infrastructure that needed maintenance or migration. Consequentially, GVT has been building new access networks, configured in a FTTC (Fibre-to-the-Curb) topology – a fibre-based, copper terminated, network that provides almost infinite bandwidth and leaves copper only for the final access connections. This is a relatively easy process for implementing IP, which reaps immediate revenues. In contrast, Brasil Telecom, BRT, an ILEC, has a traditional infrastructure. To provide IP-based services, BRT must shorten its copper loop, necessitating a replacement of the copper wires with fibre – a considerable operation, but one that will deliver swift return-on-investment. Finding the right migration approach All the above factors demand a change in the network architecture, and an access network solution that complies with key access network trends such as these. 4 High bandwidth and FTTC – In order to deliver the advanced services, high bandwidths of 20 Mbits/s per subscriber are required. To support these demands, operators have shortened the legacy copper loop and deployed FTTC or FTTR, Fiber-to-the-Remote, topologies. 4 IP support – In order to reduce capital and operating expenses, operators have redesigned their switching networks, migrating them to IP/NGN, Internet Protocol/Next Generation Network, based softswitches. 4 Gradual migration process – The migration process to IP overall in Latin America is expected to be a lengthy, gradual procedure. Subscribers demand new advanced services immediately, but operators cannot just discard their legacy infrastructure all at once, so will only gradually migrate to new architectures. The most suitable approach for this evolving environment is basing the access network on a Multiservice Access Gateway, MSAG. The MSAG simultaneously supports TDM and IP networks, supporting bandwidth-hungry broadband services, as well as telephony services, over an IP network. The MSAG enables the service provider to migrate gradually to an IP-based next generation network, whilst providing advanced new services over the legacy infrastructure. This enables the service providers to invest in a new infrastructure at their own pace, and according to their needs. Migration to IP in Latin America will ultimately result in great benefits to the region. However, the promise of a better future is closely linked to the economic, social, geographic and regulatory fabric, as well as to access network methodologies used to bring about convergence. As the Latin American market progresses, much will depend upon how well all these factors work in synergy.