Taking it up a notch
What have you done for us lately? Perhaps that's a question that operators are now asking of IP telephony, which has turned into a solid revenue producer and churn-buster for the cable industry. Because voice on its own is growing into a commodity service where margins can begin to thin, operators are now exploring the next level of VoIP applications, dabbling in video and mobile features in both the residential and enterprise spaces.
While VoIP continues to get traction in the residential market and slowly migrates to the small to mid-size business segment, new applications are surfacing that can add value to the core voice service. In the meantime, architectures such as IMS (IP Multimedia Subsystem) and platforms such as SIP (Session Initiation Protocol) are providing a platform for complementary video telephony, conferencing, unified messaging and a host of other IP-based features.
A forecast of U.S. installed base of IP-based cable telephony lines.
"The trend is toward unified communications combining instant messaging to video. There's not a high volume, but there is a big forward-looking trend, with the most appealing residential applications being fixed mobile convergence functionality and applications such as caller ID on TV screens and combining set-top boxes, e-mail, and voice to other devices. These applications are being viewed as increasing greater portions of wallets," says Steve Raab, director of IP telephony research for the Dell'Oro Group.
And the sheer number of wallets is definitely increasing, a fact not lost on service providers and the supporting cast of VoIP and technology companies scrambling to keep up with the growing worldwide demand for VoIP services and the next level applications expected to enter the market in the next few years.
For example, the number of homes marketed with cable VoIP will reach 68.7 million by 2007, with 6.5 million VoIP subscribers, says a recent Kagan Research report.
And, VoIP revenues in the U.S. are expected to reach $2.6 billion by year-end 2006, forecasts TeleGeography, with an even more aggressive prediction of 9.8 million VoIP subscribers. In addition, 58 million of the world's total VoIP households will be served by IMS platforms by 2010, predicts Pyramid Research.Adding apps
Getting to those numbers and beyond, however, will require the addition of next level applications that can be tied to the baseline VoIP service.
Not only will it require added features, but a heavy dose of awareness. "VoIP is poorly labeled and branded. People don't know what it is. Service providers want to start offering it as better than what customers have now, so they need to promote these new services like Web portals and cross-platform utilities between computing, phone and TV, like video calls, click-to-talk and IMS," says Lynda Starr, senior analyst for IP communications at Frost & Sullivan.
The cable industry, Starr points out, is uniquely positioned to capture the lion's share of the VoIP market and offer many of the next level applications, providing it takes full advantage of its core business, video.
"Cable can offer VoIP, but the real value-add for cable and VoIP besides the bundle is the strength of its video play. If they can play up the video angle with VoIP and keep it simple with video calling, caller ID on the TV, buddy lists and click-to-talk, that will be important," Starr says.
Important enough for service providers such as Cox Communications to shift its voice service in new markets to VoIP. Despite its entrenchment in the circuit-switched telephony market, Cox is well aware of the benefits VoIP offers, both from a cost-efficiency and value-add perspective, particularly with next level IP-based services.
"In our newer markets, we're launching VoIP service and upgrading to a hybrid approach using circuit-switched and VoIP, and all branded as Cox Telephone. We're currently getting new VoIP applications such as access to a Web portal to see e-mails on phones. There are certain things VoIP allows us to do more efficiently, like Phone Tools, which is in internal trials at Cox," says Mike Pacifico, director of marketing for Cox digital television.
Phone Tools, explains Keith Davis, Cox's director of wireless and enhanced voice markets, allows voice messages to be accessed online, and supports other features such as call history, call waiting, caller ID, and call forwarding.
"We can create feature packages like routing features to and from the phone, caller ID and more. The only challenges now are how we manage time to market," Davis explains.
And time to market in a marketplace growing in competitive intensity is crucial. Adds Pacifico: "With these new VoIP applications, it's more about integrating functions into our core service and enhancing their value. We're also looking at IMS as an open architecture and executing against it. We want to ensure flexibility in our network. That's why we're testing IMS and looking at vendors."
For pure play VoIP providers such as Vonage, however, next level VoIP applications take on a different meaning. Simulring (i.e. inputting multiple numbers which can ring simultaneously) and controlled messaging from anywhere constitute some of Vonage's moves to next level applications.
"Cable is limited to geographical areas, so we give more options and allow roaming to other markets, and you can keep phone numbers for life. Each customer has a unique need, like going to a specific mailbox and controlling their messaging. The key for VoIP today, however, is quality of service and the ability to bring multiple devices to the customer," says Michael Tribolet, president of Vonage America.
Another key is the advancement of IMS, an open architecture that enables new applications to ride on an array of wired and wireless networks.
"There are lots of benefits from an architectural standpoint and in exploiting the advantage of a current infrastructure's flexibility. There are some interesting things around IMS in the near future," maintains Andy Paff, president and CEO of Cedar Point Communications.
Yet VoIP itself, Paff notes, is opening doors to next level applications and is fundamentally changing the economics of voice service.
"It allows operators to do Web-based, self-provisioning, voice e-mail over the Web, while VoIP and IP management are coming together," he says. "And the technology is there for video telephone calls. But how does it fit into the business plan and where's the market? The first priority is to roll out VoIP, but most are already thinking of next level products."
Location Based Services (LBS) is one VoIP-based application being considered as a near-term, must-have offering, along with other video-based VoIP services, maintains Raab of the Dell'Oro Group. "As we move toward IMS, how do you add more LBS on mobile phones and mix devices on a big screen TV? And farther out there is an IP phone with a USB jack on the back. There are more appealing residential applications on the way."
Gaming is gaining momentum as a key application, as well, says Harald Braun, president of Siemens Networks. And the emergence of IMS is playing a leading role.
"IMS architecture was established as a convergence platform for everyone, so we moved to IMS with our trial with Time Warner Cable, which was the first IMS offering for a cable company, and VoIP is absolutely dominant," Braun says. "But gaming on mobile phones and TV sets, controlling TVs and DVRs from mobile phones are very important applications. Now, we're focusing on those IMS upgrades."
Home security, medical applications, navigation systems, and in particular, home networking, are key applications as well, but they come with a challenge. "How do we make all these things work in the home? The industry is going mobile in the in-home experience, which is a clear differentiator," Braun adds.
Making them work seamlessly within an organization is no easy task either, maintains Andrea Sorensen, segment marketing manager for Amdocs, a company that provides integrated customer management software. "When you start offering advanced services like VoIP, other applications run at the same time, and that can be a problem. The challenge is to unify the system cost-effectively and address customers as individuals. And, we must be able to support IMS-based applications, from billing customers to OSS," she says.
And the most appealing application? "Definitely unified messaging, but all of the services must be very easy, point-and-click, Web-based intuitive type services," Sorensen says. "And all of the bundles are nice, but behind the door there are lots of process improvements needed like order flows and increased efficiencies."
VoIP is also laying the groundwork for two-way multimedia, most notably in the video space.
"There are a whole lot of interesting VoIP applications: multi-screen entertainment, live gaming, push-to-talk, unified messaging, video phones and next level applications that leverage VoIP. But some will require not only two-way VoIP, but two-way video. VoIP lays the groundwork for them, while IMS and SIP will be key players," says Rick Berthold, CTO of Proxilliant, a VoIP service management company.
Yet there are some key hurdles to be cleared, particularly once VoIP and its next level of applications take hold in the marketplace.
"The challenge, with SIP specifically, is interoperability. The SIP standard has been modified and changed, so it's not necessarily operable with other systems. There needs to be massive testing for interoperability, but any technology goes through that process," says Kurt Olsen, director of product marketing for ClearOne, a communications company that develops and sells audio conferencing systems.
It recently demonstrated an audio technology for VoIP applications called MAX IP, a SIP-based VoIP conference phone designed for the VoIP business market. "We saw SIP as a flavor of VoIP. That's where we thought the best bet would be. And VoIP has the advantage of controlling, managing and changing end point devices from a central location," Olsen adds.
And quickly. Says Braun: "How do they get to the quadruple and mobility play, ASAP? And can they do wireless and WiFi and then WiMAX? We now have to build features in three months, not 12."
And not just for the residential market, but for the small to mid-size market, too. "The response to VoIP applications for the enterprise market has been wide-ranging. But they are starting to ask, 'Is this a business play? Should we provide a video piece?' Our focus groups told us the appeal of offering video to the end consumer was immense. But like SIP, there are lots of different flavors and operators haven't made decisions on what it looks like," admits Simon Tidnam, executive director of sales for Clique Communications, which is marketing an IP-based videophone application (as well as the hardware itself) to cable operators. Although its application is PC-centric, operators are showing interest in the company's platform to add value not only to high-speed data services, but to IP phone offerings, as well. It is presently in trials, but at press time had yet to announce a formal deployment with a cable operator.
Operators such as Cox, however, are making the decision to offer VoIP-enabled, next level applications. Concludes Pacifico: "We're getting applications out to phone customers, and our longer term strategy is to take the tools farther into Phone Tools and bring similar capabilities to wireless phones with IP connections and the concept of extending content out to wireless devices. It's about enhancing the services, and our research says it will resonate with customers."
Price and value are expected to resonate as well, loud and clear, says Starr of Frost & Sullivan. "Price is important, but value is the key. You can't cut the price too much. And for cable operators, the EPG (electronic program guide) is a key as well, with click-to-talk applications off the EPG."
Next level VoIP applications aren't expected to burst onto the scene anytime soon, however, with some predicting it will be 2010 before enough services get traction to impact a provider's bottom line, and architectures and platforms such as IMS and SIP are fully developed and deployed.
Nevertheless, VoIP-related, next level applications are a work in progress, with some serious revenue and churn-busting benefits as potential results.