P2P's Role for Indie VoIPers

Nothing’s ever easy for independent communications service providers that have to operate in “over-the-top” mode or on leased facilities. And nobody has time or money to mess around with the sort of risk the lack of a patent portfolio might represent, says Medhavi Bhatia, 3CLogic chief technology officer. And though the idea might cause queasiness, Bhatia thinks peer-to-peer methods of providing VoIP services might ultimately be the only way providers can steer clear of such problems. Facilities-based providers might benefit as well, though they generally are uncomfortable about peer-to-peer technologies. P2P might well be the only patent-defensible way to proceed, at least in terms of a migration strategy, Bhatia suggests. A P2P VoIP network also would be compatible with a provider’s existing network and wouldn’t require any extra equipment or infrastructure, he argues. A simple software upgrade on the home router and the softphone should do the trick. The P2P VoIP network would also communicate using session initiation protocol, providing all the advantages SIP was created to deliver. As an example, he points out that one of the three “infringing” patents in Vonage’s dispute with Verizon, the method used to bridge Internet calls to the traditional phone system (Patent 6,430,275), involves the use of a hop-off gateway that collects user authentication information and provides call accounting detail. “It seems to me that most of the claims of this patent are not applicable to a P2P network since there is no hop-off gateway,” says Bhatia. The billing information is usually collected in other ways in a P2P network as well. Then there are features, such as call waiting and voicemail functions, of which Patent 6,128,304 cover. In a P2P network, the calling node itself can be signaled to route the call to a voicemail device, avoiding any use of the patented method. Patent 6,359,880 covers handling of wireless calls, in particular the use of a home location register database. “I think if the HLR database is dropped and instead the numbers are registered by a P2P-to-wireless interworking node into the P2P network, then the calling P2P nodes will use those registrations to get to the right wireless gateway,” Bhatia says. The first generation of over-the-top VoIP networks were built using a client/server approach, in other words, exposing them to patent dangers since most of the patents assumed such an approach. There are other potential benefits as well. Server outages caused by high call load, instability or the need to do upgrades are a fact of life for today’s providers. As a result, service provider personnel spend considerable time testing, monitoring and maintaining the servers in their network. P2P VoIP provides a proven way to address these issues, he argues. P2P arguably improves reliability because it decentralizes applications. For example, in the case of file or media download, it allows the downloader to obtain the file from multiple users in the network. When applied to VoIP, the location information of users in the network is distributed amongst users themselves, thereby avoiding the need for a specialized server to do the routing. Even applications like voicemail can be implemented in the P2P network itself. All this can be built in a phased manner and, he argues, with a more graceful way to upgrade software as well. It is much easier to upgrade and change protocol characteristics and behavior to keep on avoiding detection from intermediate devices. Management of P2P VoIP traffic is most easily done by the VoIP provider itself and proves to be a hard problem for an intermediary (like a broadband service provider). In fact, to manage P2P VoIP traffic, the broadband provider will need to develop a tight partnership with the VoIP provider. It might be heretical, but there ought to be less need for infrastructure switches, routers, backup lines and redundant power since the network is now in some sense “run by users themselves.” Much the same sort of logic might apply to IP-based call centers as well. Call distribution is itself distributed to any number of call agent end points. At least in principle, the avoidance of centralized call server mechanisms should also improve overall reliability, Bhatia argues. There might very well be good technical reasons why P2P doesn’t fit with a business model. But what service providers ought to be worried about is the equivalent of hitting a technology wall, where the old line of development simply is incapable of making progress as rapidly as other approaches can.

SMB VoIP Hits Inflection Point

In retrospect, it always is possible to point to the moment when an important trend hits the inflection point, the time when adoption grows rapidly. Some will call this “crossing the chasm.” Others will say it is the steep portion of the “S” curve for any new product or service. It appears that SMB (small and medium-sized business) adoption of business grade VoIP, in virtually all of its forms—premises, hosted, managed—has hit an inflection point. If so, sales should grow much more rapidly than anything we have seen to date. That, after all, is what happens when the inflection point is reached. “What we are seeing is a big inflection point for us in 2007,” says Jeff Silbert, M5 Networks vice president. “We are doing more business this year than in the last five all together.” “We’re displacing 12,000 of our competitors’ phones every business day,” says Barry O’Sullivan, Cisco Systems vice president. “We’ve shipped 7.5 million IP phones. It took us 3 years to ship the first million and just three months to ship the most recent million.” According to the latest study by AMI Partners Inc., the North America SMB segment for hosted business VoIP is set to reach $416 million this year from about $165 million in 2005. Between 2005 and 2010, the cumulative growth rate will cross 56.9 percent. “In particular, the small business (companies with up to 99 employees) segment is forecasted to grow at a spectacular 69 percent on a cumulative basis for the next five years,” says Sanjeev Aggarwal, vice president, SMB infrastructure solutions, AMI. “The concept of hosted VoIP is analogous to software-as-a-service (SaaS) where upstarts like Salesforce.com and NetSuite are gaining rapid adoption,” says Aggarwal. “Similarly, the concept of voice communications as a service is becoming very appealing as these [small businesses] have almost no IT/voice communications expertise and resources.” North American SMB hosted VoIP market spending will cross $1.56 billion by 2010, AMI estimates. Hosted VoIP installed seats in the North American SMB market are projected to rise from 393,967 in 2006 to about 3 million seats by year 2010. That’s an order of magnitude (10 times) in four years, a growth rate consistent with a market that has reached its inflection point. The market penetration of hosted VoIP seats will increase from less than 2 percent in 2006 to more than 7 percent by 2010, with a cumulative average growth rate of 65 percent, according to AMI. We would guess that the adoption of hosted VoIP will be particularly high in companies with 10 to 50 employees, for logical reasons. Small businesses tend to be extremely conscious of their cash flow. On the other hand, if they don’t have to spend lots of money on equipment but can get “enterprise” style features for a predictable “flat fee per seat per month” basis, they can figure out why it makes sense. On the other hand, business-focused industry offerings have begun to stabilize, most notably in the area of consistency. There is better understanding of how to package and support SMB IP voice, as well as better and standardized mechanisms for controlling and protecting quality, which has been an issue in the early going. Smoothstone, Covad Communications, XO Communications, Packet8, Cbeyond and M5 Networks are some of the firms that should benefit from the trend, as the larger tier one providers are preoccupied with other weightier matters. Tier one providers also can play the numbers and figure out their margins and gross revenues might be at risk if they move too quickly into the SMB hosted and SMB managed IP voice segment. Even given the appetite for doing so, the dominant providers simply don’t have the internal channel and cost structure that make it easy for them to succeed in the SMB segment. None of which means SMB resellers, value added resellers, agencies and phone system dealers have it easy. AMI says VARs and system integrators are “struggling” to adapt to the changing market demands and the evolving business models of IT vendors. In fact, says AMI, “channel partners will need to invest in building integration and business consulting skills to maintain market advantage.” They might even need to become service providers themselves, says AMI. Similarly software-as-a-service will play a key role in the SMB market, AMI claims. SaaS spending will increase by 19 percent during the next five years. Managed services also will become more prevalent in the SMB segment as smaller firms look to offload cumbersome IT chores to outside experts. As the SMB market segment becomes more lucrative, larger players will turn attention toward smaller entities. That will include firms as large as IBM and HP, AMI analysts suggest. During 2007 SMBs also will become more mobile. Smartphone shipments will grow 18 percent, AMI says. Public wireless Internet usage will grow by more than 30 percent this year, the company says. AMI projects that VoIP and hosted VoIP adoption by SMBs will increase among the five-to-20 employee segment as the solutions become more reliable, secure and scalable. The company forecasts that IP PBX (private branch exchange) penetration among SMBs will grow by 67 percent in 2007 and penetration in hosted VoIP-based systems will grow by 75 percent, for example. And while it might be considered in the “hype” category until recently, Web-based applications and Web-based operating systems will see greater adoption as more application providers open up access to their technology platform infrastructures, tools and knowledge bases.

VoIP Goes Big Box

This summer, thousands, if not millions, of middle-class Americans will make their first real contact with Skype and get their first taste of the possibilities of IP-based voice and video communications. Mega-retailer Wal-Mart announced plans to offer offering "Skype certified" hardware at 1,800 of its stores throughout the country. The distribution deal, if nothing else, exposes shoppers of the world’s largest retailer to branded "Skype Internet Communications" sections within Wal-Mart stores’ electronics departments. There they will find affordable headsets, webcams and handsets designed to work with Skype, as well as the first pre-paid cards for Skype available in the U.S. Up to nine different Skype Certified hardware products will be available, including VoIP for less than $15, webcams for less than $25 and handsets for less than $30 from brand names such as Plantronics, Philips, Logitech and more. Wal-Mart also is the first and currently only retailer in the U.S. to offer Skype’s pre-paid cards. Wal-Mart shoppers can purchase a $20 pre-paid card and redeem it for Skype credit required to make cheap long-distance calls (international rates as low as 2.1 cents per minute) to phones on the public switch telephone network worldwide via Skype. Of course, calls to other Skype users, including video calls, are free. Another pre-paid card is available in stores for a three-month subscription to the Skype Unlimited Calling Plan for just $8.85. This gives consumers three months of unlimited Skype calls to any landline or cell phone number in the U.S. and Canada. Currently, Skype users can buy credit only online. Clearly, executives at eBay’s Skype understand the potential a "store within a store" presence on the floor of the world’s number one retailer can do to boost membership, particularly when considering Skype cost-savings proposition jives perfectly with Wal-Mart cost-conscious customer base. "Our research suggests that when users add a Skype Certified accessory like a headset, handset or webcam, it greatly enhances their experience, and they use Skype more to connect with family, friends and business colleagues," says Don Albert, vice president and general manager of Skype North America. According to the Telecommunications Industry Association, 9.9 percent of all landlines in the U.S. were VoIP lines in 2006, and Skype is the number one software-based VoIP application in the U.S. by market share, according to a March 2007 report by In-Stat. Today, Skype has more than 196 million registered users around the world. So how important is Wal-Mart to American shoppers, and hence VoIP movement toward the mainstream? According to consumer research firm BIGresearch, Wal-Mart is the "shopped at most often" by American’s looking to purchase men’s and women’s clothing, health and beauty products, sporting goods and even groceries, and is among the top three retailers of footwear, prescription drugs and electronics, among other categories. On the business side of the IP telephony world, other big name news came from Microsoft, which announced an initiative with nine leading device manufactures to develop a "new generation" of devices that connect the workplace phone to email, instant messaging, real-time presence information, conferencing, VoIP and mobile communications. The phones and devices will become available for use in the public beta program of Microsoft Office Communications Server 2007 and Microsoft Office Communicator 2007. Microsoft is providing the device manufacturers with design specifications to assure the new phones and devices work easily with Office Communications Server and Office Communicator. The participating companies include, ASUSTek Computer Inc., GN, LG-Nortel Co. Ltd., NEC Corp., Plantronics Inc., Polycom Inc., SAMSUNG, Tatung Co. and ViTELiX. Clearly, Microsoft’s intentions are to integrate its new communications servers with its base of installed

Business IP PBX Still Booming

Overall enterprise telephony revenue is on track for another year of double-digit growth, say analysts at Infonetics Research. In the first quarter of this year, total worldwide business phone system sales inched up 1 percent sequentially and are up 8 percent from the first quarter a year ago. Sales of pure IP PBX (private branch exchange) systems, in particularly, increased 76 percent for the first quarter of this year over the same period in 2006, and Infonetics forecasts the percentage of small organizations using VoIP will more than triple, while the percentage of medium and large organizations using VoIP will roughly double between 2006 and 2011. Overall, the business telephony market will total $11.9 billion in 2010, Infonetics researchers estimate, with the average percent of total voice product expenditures that is spent by respondents on VoIP products—IP PBXs, IP phones, etc.— growing from 41 percent in 2006 to 58 percent in 2008. Currently, hybrid PBXs lead the list of installed IP PBXs, but the use of TDM (time division multiplex) PBXs and key systems are expected to decline by as much as half by 2009, and this slack will be picked up by pure IP PBXs, Infonetics predicts. Avaya and Nortel are the most commonly used manufacturers of TDM PBXs, and Cisco is the clear leader in VoIP products, says the research firm.

Incidentally, close to half of respondents aren’t encrypting VoIP media or signaling, but those numbers drop to less than a quarter by 2009, as more respondents begin to use IPSec for encryption, says Infonetics. Meanwhile, the number-one reason given by organizations for not deploying VoIP is that their existing phone systems already do what they need them to do. IP Briefly Noted LiveVox announced the availability of its multi-site contact center management offering. Featuring built-in agent presence and role-based security, the LiveVox Voice Portal 2.0 now provides executive management with direct access to agent, campaign and call activity details across an unlimited number of contact centers. Role-based security ensures that only approved management is able to update and change specific information including campaign parameters and execution across multiple sites. CommPartners has become the first hosted service provider with national coverage to offer general availability of Linksys One 2.0, the comprehensive hosted IP communications platform for small business customers.

More than 6 million VoIP telephony lines deployed by operators around the world are managed by Thomson’s Cirpack Class-5 voice switches. This represents 50 percent growth in users in just six months. Allworx is offering a new five-year extended warranty program for its VoIP phones and VoIP systems, representing one of the most comprehensive warranties available to the SMB marketplace. Allworx also has revamped its return process to simplify return requests. The optional five-year warranty is available through Allworx resale partners. Consumers searching online at maps.live.com for businesses such as area restaurants, hotels or car dealerships can now click to make free PC-to-phone calls to many advertisers, using Verizon’s Business IP network. Windows Live Call for Free from Microsoft now uses Verizon’s VoIP capabilities and global network to give consumers a convenient and no cost way to find services they want and need.

Cisco, Avaya, Nortel, 3Com, Alcatel ... Microsoft?

The name “Microsoft” is not top of mind whenever one thinks of suppliers of enterprise phone systems. But Microsoft hopes that will change, providing another glimpse into the ways the technology supply chain is changing. Microsoft unveiled its own IP phones in May and is preparing for a major launch of Office Communications Server, the latest revision to Live Communications Server. Not to be alarmists, but “road kill” comes to mind as one surveys the existing line up of providers of business phone systems. Heck, it has to. As Cisco came essentially out of nowhere to claim a lead position in the enterprise phone systems market, so now Microsoft is about to make its move. To be sure, Microsoft is “playing nice” for the next two years, designing its new line of phones to work with existing PBXs (private branch exchanges). Inevitably, Microsoft will go further. That is what Office Communications Server 2007 and Office Communicator 2007 are about, after all. To bolster its credibility, Microsoft last June launched its multifaceted partnership with Nortel Networks, dubbed the Innovative Communications Alliance, which gave Microsoft access to Nortel intellectual property around VoIP. Microsoft’s plan is to slowly introduce more advanced PBX functionality into its products such as the OCS and work its way into the enterprise.

In the meantime, Microsoft will do what it can to “freeze the market,” a time-tested technology technique. And though virtually no enterprises have indicated they even would consider Microsoft a credible candidate to replace their current phone systems, everybody now lives in a different world, where unknown competitors can seize the heights of a market. Cisco’s emergence as a leading enterprise phone system provider is all the proof Microsoft needs to see. In fact, the shift of value from hardware to software is a broad theme observable almost everywhere in the communications market. Both Microsoft and Cisco, for example, agree that networked software is the future. And that’s why 80 percent of the companies Cisco now acquires are software companies. In the past, 80 percent of its buys were of other hardware suppliers. But that sort of world exposes every major supplier and service provider to competition from just about everywhere else. Software’s importance is how Cisco grabbed a quarter of enterprise market share for phone systems, for example. Software is why Google now offers a network-delivered desktop productivity suite. Software is why Microsoft is chasing the online ad business and Google; why Cisco and Microsoft want to be big in the conferencing business. Hence Cisco’s WebEx Communications purchase puts it in head-to-head competition with Microsoft Live Meeting. In broad terms, here you have a dominant provider of core networking infrastructure moving into new markets that are the same ones a dominant provider of desktop productivity applications is moving into. At the same time, one has new contenders springing up almost overnight and creating brand new application businesses that somehow wind up rousing the attention of core networking and desktop productivity providers. No better question exemplifies the concern than the question “what will Google do?”

So the question many suppliers and users of enterprise voice and communications services will be asking themselves is “what their Microsoft strategy is.” Alec Saunders, Iotum CEO and a former Microsoft executive, says every company in the business phone system space has to have an answer for that question, because Microsoft does. In the late 1990s, when the first Microsoft smartphones were being designed and Saunders was working in the Windows CE group, the “the core strategy was to tie the phone to the Microsoft Office and BackOffice product lines,” says Saunders. “Fast forwarding to today, the biggest growth area in Microsoft’s Office Systems Division is, unsurprisingly, communications,” says Saunders. “That strategy, coined a decade ago, lives on.” Office Communications Server is about “the total integration of communications and productivity applications,” Saunders notes. “With the delivery of these products, we are witnessing the beginning of the end of the transition of communications systems from yesterday’s PBX and desk phone solutions to complete software solutions,” says Saunders. Though the initial implementation works in conjunction with existing phone systems, the longer term vision is to dispense with all that. OCS will work with existing phone systems, but with the Communicator soft client one can use the PC itself as the phone. So what becomes of the office phone system? In one sense, it remains, but only as a software application running with a greater variety of end points, including desktop “phones” but embracing PCs and other devices, especially mobile smartphones.

“Microsoft’s recently announced Response Point embedded PBX for small and medium business is following a nearly identical strategy,” says Saunders. “Early pioneers in this market, like Epygi, have watched as first Linksys, then Digium and now Microsoft are entering this space with offerings focused on small business.” Prior to Microsoft, “the only OEM strategy for building an embedded PBX was Digium,” says Saunders. “Microsoft’s focus on enabling a hardware channel—putting D-Link, Quanta and Uniden into direct competition with Digium for the OEM dollars, and enabling an ecosystem to compete against Linksys and smaller players like Epygi— is bound to pressure the market from every direction. “In each case, enterprise, smartphone and embedded, Microsoft is commoditizing the underlying platform,” says Saunders. “By building shared media, signaling and API (application programming interface) infrastructures in these environments, they can achieve economies of scale and attract developers and OEM partners at a rate which others will be hard pressed to match.” Competitors can survive and thrive if they launch businesses complementary to OCS, says Saunders. Or they can build vertical market apps that integrate with OCS. A few might even be able to make a go of things as the alternative to OCS. “Microsoft’s plan is a 10 to 15 year view of the market, which is only starting to be visible today,” says Saunders. “Taken in totality, it’s a plan to dominate every aspect of enterprise communications, with the exception, perhaps, of the carrier network.” Pretty soon, lots of executives will be announcing what they intend to do about Microsoft. They might not say it in so many words. But that’s what it will be. Here comes OCS. Get ready for road kill. IP