Options for independent cable providers

Once upon a time, voice services delivered to cable subscribers using voice-over-Internet Protocol (VoIP) technology were considered possible add-ons to standard cable offerings. Fast-forward to 2007, and these services have survived the proving ground of the top cable providers.

Voice, video and data service bundles have emerged as a powerful triple-play that has been effective in gaining customers. Comcast alone added 571,000 digital voice subscribers in the first quarter of 2007. The presence of voice in the bundle has also served to stem the turnover of video and broadband data subscribers.

Table 1
Table 1: An independent cable operator has to weigh the merits of deploying VoIP
service on its own, partnering with an existing phone provider, or outsourcing.

While it is true that traditional voice carriers are beginning to roll out video, it is also true that their reach is still limited – a fact that is putting cable operators in an ideal position to seize the strategic advantage of VoIP and establish an early foothold in the growing market for bundled voice, video and data services.

Now the question is: how can an operator with limited resources add VoIP technology to its existing set of services?

Taking advantage of VoIP’s potential
The largest cable players have shown that VoIP is a valuable addition to the product mix, but they haven’t provided a model for smaller, regional companies to follow. Building a VoIP offering “from scratch” is probably not a realistic ambition for most independent providers.

As a small- to medium-sized operator, you have two viable options for delivering voice services. The first is to partner with a competitive local exchange carrier (CLEC) and rely on the CLEC to provide services while you operate your own feature server. Your second choice is to fully outsource your service.

As outlined in Table 1, building your solution from the ground up would require more equipment and staff than partnering with a CLEC or completely outsourcing your service. And, while partnering with a CLEC may mean that you need to invest in a few more technical components and potentially more human resources than you would need for a fully-outsourced option, that option’s benefits can still outweigh the costs.

Table 2
Table 2: Operators considering their options
for deploying VoIP should be aware that there are trade-offs.

Before a cable operator decides to build, partner, or outsource, it should understand the importance of a successful digital voice services rollout. In an industry that is challenged with customer retention issues, the same service that promises to improve loyalty can actually send customers to other providers if it is poorly delivered. While it takes knowledge and commitment to provide high-quality digital voice services, make no mistake that it is absolutely achievable. And, those who succeed can realize an additional revenue stream, and use a more powerful bundle to retain customers while adding video and broadband data subscribers.

There are three key factors for operators to consider as they determine whether to partner with a CLEC or work with a vendor that can deliver a fully-outsourced solution:

1. Time to market: The more components an organization has to deploy, the longer it will take to bring a new service to market and achieve return on investment (ROI).

With end-to-end testing, deploying a feature server (which is needed in order to partner with a CLEC) can easily take six to 12 months, depending on equipment installation lead-times, testing, and integration variables. An operator can accelerate this timeframe by working with an experienced provider to implement a fully-outsourced solution. There may be other tradeoffs to consider, however.

2. Feature control: The question is whether there is a benefit to tailoring features to customers’ needs, or if an operator is comfortable providing its customers with a pre-determined, cookie-cutter set of features that may or may not be what they want.

By owning and operating a feature server and partnering with a CLEC, cable operators gain full control over their offerings. A fully-outsourced solution, on the other hand, means an operator can deliver only the standard features that are available from the provider who hosts the service. By installing a feature server, an operator could, for example, offer caller ID services on the television – a capability that is not yet considered standard by most outsourcers.

While a good outsourcer will choose its offer set carefully, before an operator commits to this type of relationship, the operator should determine what is most important to its organization and its customers. Is it preferable to have control over the potentially differentiating features delivered? If so, a partnership with a CLEC is probably your logical choice.

For operators more focused on avoiding the expenses associated with server ownership and the responsibilities that accompany service management, a fully-outsourced solution is most likely the best bet.

3. Risks vs. rewards: Deploying a feature server requires capital expenditures and operating expenses, but because it allows an operator to combine the fixed costs of the server with the variable costs of the VoIP service, this approach will enable operators to realize a lower cost per customer as the subscriber base grows. This approach has the potential for bigger margins over the long term.

In contrast, implementing a fully-outsourced solution relieves an operator from having to invest limited capital into equipment, and from making major long-term financial commitments. This low-risk approach enables an operator to deploy VoIP with a completely variable cost structure, but it also ensures that costs are consistent on a per-subscriber basis, and generally do not lower with scale.

Partnering with a CLEC requires fewer operational expenses, and less up-front costs and associated risks while providing an operator with nearly all of the same benefits as building a solution from scratch, including control over key elements of the service. Fully outsourcing, however, allows an operator to quickly deploy voice service, generally at the lowest possible initial price. The approach is flexible, inasmuch as it’s pay-as-you-go, but it restricts operators to “me too” offerings, and affords little service control.

Choosing a provider
Regardless of whether an operator decides to deploy its own feature server and partner with a CLEC, or purchase a fully-outsourced solution, there are several fundamental considerations that should be taken into account when selecting a VoIP provider. These include:

Figure 1
Figure 1: For independent operators, the key to rolling out VoIP
is finding a partner to interface with the public switched telephone network (PSTN).

Quality: Getting to market quickly with a low-cost solution won’t mean much if you can’t deliver a quality voice service that your customers can depend on. It is important that you seek a partner that has significant experience managing softswitch services, such as managed modem and VoIP products, and can deliver a tested, reliable solution.

Operators should also make sure that a selected provider has a voice network that is designed for IP, with a complete session initiation protocol (SIP) interface, and key routes leased from other providers. When focusing on launching a service as quickly as possible, with the expectation of enjoying the cost advantages that are derived from operational efficiency, an operator does not want to rely on a provider whose network has been retrofitted for VoIP.

Coverage: Providing customers with the local- or long-distance voice services they need may be impossible if a VoIP provider has a limited footprint.

Also, an operator should select a provider with CLEC status in every state in which it does business, has access to rate centers, and provides connectivity to voice-capable trunks. Finally, work with a provider that has local phone numbers in each unique rate center where you serve customers, and proven processes that ensure the effective management of their telephone number inventory and local number portability (LNP).

Experience: Do you really want to be someone’s technology experiment? If not, check credentials and select a partner that has extensive experience with cable operators of all sizes. Operators should be focused on accessing and employing the building blocks needed to develop or expand presence in the residential voice market. Choosing a provider with TDM and IP interconnections and the ability to support a transition between the two technologies, as well as local, domestic long-distance and international termination services, can help achieve lower costs and realize quicker time to market.

E-911 connectivity: When it comes to enhanced 911 (E-911) services, an operator should only trust the routing and completion of its subscribers’ most important calls to an experienced E-911 network provider that can deliver coverage, reliability and experience.

It is important that an operator select a partner that has invested the appropriate resources to address regulatory compliance issues. Beyond E-911, a provider must be able to comply with the FCC’s Communications Assistance to Law Enforcement Act (CALEA) order for VoIP and deliver Local Number Portability (LNP) compliance.

Flexibility: The point of adding voice services is to continue to grow business. Therefore it is important to partner with a provider that can help address new markets. Opt for a provider that can add business services to residential offerings, for example. It’s also preferable to find a partner that can integrate your operational support system (OSS) using a business-to-business application protocol interface (B2B API), a Web-based interface, or bulk-load capabilities for service activation.

Stability: Changing providers can be a painful and expensive process, and during a time of massive consolidation in the communications industry, it’s more important than ever for an operator to align its business with a partner that will be able to serve its business over the long term. After all, why should any operator put its subscriber base at risk for service interruptions, or its business in danger of losing customers? Seek a provider with a broad base of customers, a comprehensive portfolio of services, and a forward-looking VoIP strategy; as well as operating results that foretell growth and strength.

Wholesale orientation: Each operator will have to decide for itself if it’s comfortable partnering with a VoIP provider that is also a competitor. There is a strong likelihood that any operator’s existing subscriber base is currently purchasing phone service from the local exchange carrier (LEC). Do you think that same LEC is really your best choice as an underlying provider? Or, would you be better off working with a nationwide CLEC with a wholesale orientation and interests that are aligned with yours?

A successful voice offering means consistent IP quality and high uptime. The fact is that voice is much less tolerant to quality impairments than data services. If your voice service is fast and efficient, and your analog plant and data services that ride that analog plant are high-quality, your customers will be happy and your business will reap the rewards.


VoIP from scratch? The checklist gets longer

Large cable providers have made major capital investments and huge operational expenditures to build and operate VoIP solutions. There are two major components to building a VoIP solution – regulatory and operational. The following is a high-level overview of what’s involved.

Managing regulatory complexity – The combined state and federal regulatory requirements for providing voice services as a CLEC can be daunting.

These include Public Utilities Commission (PUC) approval in the states where the provider wants to conduct business, and various Federal Communications Commission (FCC) requirements relating to the Telecommunications Act, among others. Navigating through this maze can take a significant amount of time and is a process that requires specialized human resources adept in these types of contract negotiations. The most important regulatory issues to address for a full build-out include:

  • Establishing public switched telephone network (PSTN) connectivity.
  • Requesting CLEC status in each state in which you want to do business; a time-consuming process.
  • Establishing interconnection agreements with incumbents for the areas in which you want to provide service; another lengthy process.
  • Ordering connectivity to selective routers to provide FCC-compliant 911 services.
  • Paying and tracking tariffs and inter-carrier compensation.
  • Providing for regulatory compliance issues, such as LNP and the CALEA.

Supporting ongoing operational commitments – Once the operator has overcome regulatory hurdles, it’s time to focus on the complexities of managing a voice network. There is a significant up-front investment in, and must be an ongoing commitment to equipment, network connectivity, and people who can manage the network. Specific operational responsibilities include:

  • Negotiating interconnection agreements.
  • Ordering trunks from all applicable regional LECs, managing that capacity, and making sure they have the appropriate types of trunks.
  • Establishing gateways to connect those trunks.
  • Gaining connectivity to regional Bell operating companies (RBOC) tandems.
  • Monitoring increases in capacity and managing RBOC throughput limitations.
  • Maintaining relationships with interexchange carriers for long-distance routing.
  • Managing telephone number inventory, which involves creating local routing numbers and ordering telephone numbers from the national numbering authority.