Profiting from VoIP Requires Flexibility for New Operators

Even the most conservative analysts agree that in the next 10 years all telecommunications will be carried out in IP mode. Moreover, the fusion with other modes of data transfer will pave the way for “Triple Play” services, combining Internet, television, and telephony in one package. How far has the revolution gone already? How will this new development transform the market? What will the share of this market be for emerging operators? How will this mutation affect their billing systems? To answer these questions, Transactive Reporter interviewed Olivier Hersent, French pioneer in Voice over IP (VoIP) technology.

Olivier Hersent is the founder and CEO of NetCentrex, a provider of solutions for telecommunications operators. Initiator of VoIP architectures in the R&D labs of France Telecom (CNET) beginning in 1997, this visionary graduate from France’s most prestigious Engineering school, Polytechnique, chose a technology that is rapidly becoming the new standard in telephony.

Transaction Reporter : Olivier Hersent, how is the European telephony landscape changing today?

Olivier Hersent : With the progressive deregulation of the market, competition is beginning to emerge between incumbent monopolies and a handful of challengers that are two or three times smaller. Up until now, the technologies and service offerings have been quite similar on the whole. Today, the market is entering a phase of radical change. In France, we expect the creation of 10 or so new operators. These operators are particularly aggressive and operate with new VoIP technology and will offer “Triple Play” type services. They often target much more geographically specific markets such as city-nets – local operators covering metropolitan areas such as Pau in the South of France, and Amiens in the North – and are much smaller than national operators such as Cegetel. Users expect this new offer to be less expensive and richer in services.

TR : How can small operators handle the gigantic infrastructure investments necessary for deploying these services?

OH : Indeed, deploying a residential service that covers a metropolitan area costs around two million euros, minimum. Small operators do not have the critical mass for this type of investment. This is why the Application Service Provider (ASP) mode has made a comeback after having disappeared with the burst of the Internet bubble. For a client base of less than 20,000 subscribers, it is not reasonable to invest that heavily in a communications platform without some guarantee of your return on investment. Typically this return is possible by selling the use of the platform to other operators who could then resell the services to their own clients. Equipment and billing systems need to be modular and standardized in order to support such a business model, because of the multiple actors and services involved.

TR : But how can operators be competitors and clients at the same time?

OH : In this new market configuration, two city-nets who operate locally are not competing. Therefore, they will be perfectly able to share their equipment. NetCentrex has pioneered this concept with the Norwegian operator Lyse Energi who sold its solution to other Nordic operators.

TR : How does VoIP technology facilitate sharing network equipment between operators?

OH : It presents an enormous advantage because all call switching services are independent of geographical location and may be installed anywhere. This means that it is no longer necessary to multiply platforms in order to cover an extensive territory well.

TR : How is this technically possible?

OH : The new switches only deal with call signalling information. The voice passes directly through the Internet or the IP network. These switches can therefore serve extended zones without degrading the quality of the voice signal. A good example is how Equant used this technology to reduce the number of its platforms that support voice over virtual private networks from several hundred to only two: one in Paris and one in New York. The operational costs for these platforms were divided by 100. Considering this, you understand the enthusiasm of new operators for VoIP.

TR : How does the development of a shared platform affect the pricing and billing system?

OH : The pricing and billing system must be particularly flexible. While receiving usage reports from a single source, this billing system must be capable of distributing the transactions to different operators. These operators will have clients, services and pricing schemes that are all different. For this particular type of deployment, the Highdeal solution is the most flexible, open and cost-effective to implement.

TR : But most operators already use a billing system of some type. Can they add the Highdeal solution to this in order to develop new services?

OH : It’s not only possible, but also extremely advantageous. Given that several invoices may be aggregated onto one web page with complete transparency for the user, more and more operators are tempted to operate with the principle: one billing system for one service. The investments involved in prolonging the life of monster proprietary systems and upgrading traditional billing systems are becoming more and more prohibitive. This was possible when the market was not open to fierce competition. However, it is now unacceptable to spend more than 10 Euros per user for a new service. On the other hand, vertical billing systems, which are packaged for one specific segment such as prepaid, do not present an acceptable alternative. Even if they are competitive in terms of investment, they cannot be shared between operators with different approaches to their services.

TR : How can the Highdeal solution be implemented in systems that are shared by multiple operators?

OH : An operator that acquires its platform will create and offer services for its clients. The operator will invoice city-nets in Lyon, Paris, or Marseille for the use of the softswitch. Each city-net client will include this cost when setting the price of private virtual network subscriptions as well as the price of the call itself.

TR : What is the future of the VoIP market?

OH : The expansion phase has already been launched in Europe, which presents the most potential for development. In France, the last barriers to deregulation of local loops are coming down, as has already happened in Italy and Spain. The French Telecommunication Regulatory Board (ART) has lowered the cost of unbundling the last mile, while at the same time, an important legislative movement is pursuing the authorization for municipalities to operate their own networks. In the meantime, some local authorities have already found loopholes that allow them to launch these projects.

TR : What will the market share be for new operators?

OH : We estimate that there will be up to 50 city-nets per country. This could generate around 10 platforms shared in ASP mode. As for their impact on the market, without citing any figures, the fervour with which they are moving now leads us to believe that it will be rather significant. Look at an operator such as Fastweb in Italy. It has taken nearly 250,000 clients from Telecom Italia in a little less than one year and is currently acquiring 1,000 new subscribers per day with its “Triple Play” offer, which is unique on the Italian market.