The technology that marries multi-line voice services with DSL data has been stuck, spinning its wheels, and unique market factors may keep VoDSL from ever gaining the momentum needed to reach critical mass
Like the CLEC market itself, the technology that adds multi-line voice capabilities to data-only DSL loops, called Voice-over-DSL, has suffered through a series of ups-and-downs, and stops and starts. At one time, VoDSL was viewed as a potential defining technology for a burgeoning CLEC market anxious to sap as much revenue as possible from the single copper loops they lease from incumbent operators. But poor market timing, technical hurdles and competitive pressures have jeopardized VoDSL's place in a future where voice and data convergence is inevitable.

As a technology, VoDSL shows a lot of promise. Essentially, a VoDSL system breaks the bandwidth of a high-speed DSL connection into multiple "virtual" phone lines. Specialized CPE and advanced voice gateways in the service provider's network slice the bandwidth into 64-kilobit-per-second pieces, and can support up to 24 separate calls in addition to traditional data traffic.

The architecture necessary to offer VoDSL isn't too much of a stretch for today's operators either, it seems. At the customer premises, an operator would need to provide a next-gen voice and data integrated access device (IAD). That IAD connects to the traditional DSLAM (digital-subscriber-line access multiplexer), and delivers packetized voice signals to a voice gateway sitting in the central office of a regional switching center. From the gateway, voice is transferred to the PSTN (public switched telephone network) via GR-303 connection (or v5.2 for Europe), and the DSL data is sent over traditional ATM protocol. Today, when we talk about VoDSL, we're essentially talking about VoATM.

For a CLEC offering simple DSL data over a single copper loop, the mathematics of VoDSL make it extremely attractive, especially as a service aimed at small office/home office (SOHO) business users. Now, on the same single copper loop that has heretofore provided just flat-rate data, a provider could provision multiple lines of voice as well.

The market for VoDSL…by the numbers
VoDSL voice gateway mkt. share 2001
VoDSL voice gateway market share, YE 2001
VoDSL IAD mkt. share 2001
VoDSL IAD market share, YE 2001

Source: “VoDSL: Deployments, Subscribers and Revenues,” Allied Business Intelligence, 2002.

So what's the latest on VoDSL's evolution? When VoDSL really sprung on the scene, around 2000, the growing CLEC market was anxious to offer differentiated services, and nascent VoDSL was eyed with great promise. At the time, however, the technology required a bit of debugging. VoDSL vendors went back to the lab, corrected many of the problems, and soon had more reliable product for operators to trial and test.

But, by 2001, as VoDSL vendors prepared to bring a slew of new products to market, they found their target market–the CLECs–being decimated and disappearing at an astonishing rate. By the time the VoDSL vendors–companies like Jetstream, CopperCom, Efficient Networks, Adtran, Zhone and TdSoft–had product ready for market, the competitive sector they were relying on to push their technology to the mainstream had completely dried up. Talk about awful timing.

For last-man-standing CLEC Covad Communications, its experience with VoDSL mirrors that evolution.

"(In late 2000) we really had to hunker down and keep our eye on the ball to keep the company afloat. We pushed voice off into about 2001, and we didn't really make a whole lot of progress beyond some minor engineering trials last year," explains Todd Kiehn, senior product manager for business services with Covad. "We were pretty close, I think, to rolling out this access service on a big scale in 2000. Covad's difficulties (meant) pushing that off to focus on core services."

In the meantime, the amount of equipment shipped has ground almost to a halt. According to researcher Dell'Oro Group, which tracks equipment shipments in the telecommunications and cable markets, the number of voice-data IADs shipped in 2000 was a mere 49,000 units worldwide. For 2001, the number actually dropped to a paltry 41,000 CPE units shipped. By way of reference, the number of straight-data DSL modems shipped in 2000 was almost 15 million.

But is there hope for a VoDSL rebound? In the eyes of some industry watchers, any momentum for VoDSL will have to come from the competitive providers left standing amidst the CLEC rubble, few as they are.

"The CLEC market did dry up (in North America), but now there's a revival of the CLECs going on," says John Chang, a senior analyst with Allied Business Intelligence. "They're a more weathered, experienced group."

Chang is the author of a new report titled "VoDSL: Deployments, Subscribers and Revenues." In it, he is bullish on the technology, and predicts year-end 2002 revenue from VoDSL to grow 90 percent to $159.7 million, and VoDSL subscriber lines to jump to more than 96,000 from just 14,000 in 2001.

From an ILEC perspective, it appears that it will take more than competitive pressure from a few regional CLEC deployments to push the incumbents into action with VoDSL. Analysts concur that all of the major ILECs have been kicking the tires of VoDSL in lab trials and small field tests, but with so much voice business currently riding on analog POTS (plain old telephone service) lines, they'll need to be truly compelled to cannibalize their traditional voice business to offer next-gen VoDSL service.

"The key for VoDSL for (the ILECs) is to make some kind of business case that they're either running out of analog copper loops to do regular voice, or that there's some savings that they could make doing VoDSL, whether or not they have a shortage of copper," says Pat Hurley, DSL analyst with researcher TeleChoice.

While the CLEC market in North America looks to right itself after being wobbled by the telecom crash, the competitive market in Europe and the rest of the world is taking shape, benefiting from hindsight applied to watching the CLEC debacle unfold in the U.S.

In Europe, network unbundling is just now becoming a reality, and many of the start-up CLEC companies there are adopting a reseller's, as opposed to a wholesaler's, approach. Also, many of these new European CLECs are actually funded by incumbent PTT providers like British Telecom and Deutsche Telekom. What effect this type of CLEC-ILEC model will have on the roll out of new technology is unknown, but will play out over the next couple of years.

By the numbers, the market showing the greatest promise for VoDSL is not in Europe or North America, but rather in Korea and the Far East. Stunningly, Korea has more than 4 million DSL customers, far outpacing much larger countries. In Korea, CLEC Hanaro Broadband has shown an aggressive posture with regard to VoDSL, and it has woven together a large web of DSL infrastructure across the country with which to work. According to analyst Chang, "VoDSL will be sort of easy for (Korea)."

Back on the ranch here in North America, it should be noted that the competitive landscape for new voice-data technologies encompasses more than just the ILECs versus the CLECs. Interexchange carriers (IXCs) like AT&T and Sprint are an X-factor for technology like VoDSL. Before having to pull the plug on its ambitious ION plan to offer nationwide DSL business services, Sprint aggressively deployed DSL in 2,000 central offices across the country, and had eyes to offer next-gen voice services over that infrastructure as well. Recently, Sprint Chairman Bill Esrey lauded the company's technological advancements realized through the ION program, but lamented ION's fate due to financial, rather than technical, reasons.

Still another non-traditional provider aiming for next-gen voice-over-DSL is DirecTV, which resells DSL service under the name DIRECTV Broadband. DirecTV, despite its pending merger with EchoStar Communications, inked a partnership in April with Texas Instruments to deploy voice-enabled DSL gateways to its residential DSL customers, which would support two digital voice lines along with multiple home networking interfaces. The self-installable gateways are slated to be deployed later this year, with the voice service scheduled for launch sometime in 2003.

But the elephant in the tent in the next-gen voice services market is actually outside of the telco sphere, and is likely the looming competition for voice from the cable industry. MSOs like AT&T Broadband and Cox Communications are quietly taking a growing piece of the ILEC's bread-and-butter residential voice services, and further erosion of their market share may prod the incumbent telephone companies to fund new revenue-generating initiatives, and potentially VoDSL.

"I think the ILECs are more concerned about the cable threat. (Cable's) sort of hitting the base residential market of the ILECs really hard," says TeleChoice's Hurley. "They're coming in with the video package. They're coming in with two or three times the penetration in broadband. And now they're sort of taking away core revenue?basic voice for residential customers."

Allied's Chang puts it another way.

"It's not about competing companies. It's not about CLEC versus ILEC," Chang says. "It's about competing technologies."

One competing technology is VoIP. Several cable MSOs are busy integrating VoIP into their networks, first to offer voice, but then to offer more managed, higher bandwidth data services via an all-IP network. ILECs are eyeing all-IP as well, with the implementation of new softswitches and hybrid Class 5 switching technologies that can migrate to IP some time down the road. It is entirely possible that the ILECs are planning a migration to VoIP instead of current-generation VoATM technologies; it just depends on whether or not they feel compelled to roll out VoATM in the interim.

But to date, the VoDSL activity underway today is limited to a few regional competitive plays, and the incumbent companies are moving toward VoDSL glacially, if at all. U.S. ILEC BellSouth is the only one to publicly move VoDSL from the lab to field trials. Early this year, BellSouth announced operational trials in Atlanta and Miami with some small business customers, and the company's likely to move beyond this small-scale trial later this year.

"They've become a more innovative and aggressive DSL deployer recently," explains Hurley, referencing BellSouth's ambitious program of remote terminal deployments and DSLAM expansion. "They've been very aggressive about getting their footprint out wider for DSL, and competing more aggressively against the cable companies."

But aside from BellSouth, the only practical momentum for VoDSL has come from a few select early-adopter CLEC providers in pockets across the country. One of the first CLECs to gravitate to VoDSL was national CLEC Mpower Communications, who offers data and telephony services to small businesses in 28 markets coast-to-coast. Back in 2000, Mpower partnered with gateway maker TollBridge Technologies to offer a VoSDSL (or Voice-over-Symmetrical DSL) service, making Mpower one of the largest carrier providers of VoDSL in the world.

But, a year and a half later, during its year-end 2001 earnings call for investors, Mpower announced that it was de-emphasizing its VoDSL business product–not turning current customers off, but not lighting up new VoDSL customers either.

Today, there are a few regional CLECs moving forward with VoDSL. Network Telephone, for example, a facilities-based CLEC serving small business customers in multiple states in the deep South, recently announced that it had completed VoDSL and VoT-1 field trials and was moving closer to commercial deployment on its network.

Farther north, New York-based CLEC Broadview Networks spent much of 2001 rolling out VoDSL services in major markets like New York, New Jersey, Boston and Philadelphia. With the service now available in some major metropolitan markets, it will be interesting to see if the beleaguered technology can catch on and make believers out of the rest of the market.

"The only thing that is going to move (the ILECs) is competition," says Todd Tatum, a product line manager with IAD maker Efficient Networks, a subsidiary of German giant Siemens. "What you have to see is one major competitor stand up to make (VoDSL) happen, and I believe we'll see that in the next 12 months."