Cox Communications, already a leader in cable telephony with its circuit-switched offering, is closely watching VoIP developments. Given the resolution of several
outstanding issues, VoIP technology could play a key role in Cox’s telephony future.
Voice over Internet Protocol (VoIP) technology enables transmission of phone calls via the same networks that carry Internet traffic. While IP-based phone services aren’t yet a fixture in many homes, the convergence of data and voice technologies is well underway, and VoIP services are expected to be widely available to residential consumers within the next few years. For companies such as Cox Communications, already a provider of circuit-switched phone services, VoIP offers exciting potential growth opportunities. Surrounding it, however, are numerous issues that need to be addressed.
Because VoIP is not yet viable for widespread deployment of residential, primary-line, lifeline phone service, Cox has not committed to specifics related to deployment of IP phone services. However, we are actively pursuing VoIP technology trials and foresee several compelling benefits, including opportunities to: •Leverage our existing nationwide IP backbone network •Expand phone service into new markets •Leverage our telecom expertise, experience and infrastructure •Protect the investment in our circuit-switched telecom operations •Generate cost efficiencies by regionalizing many components of delivering phone service •Reduce costs by transporting long distance calls over our IP network •Offer customers exciting new phone features Getting started in telephony In the mid 1990s, Cox began installing switches in select markets, preparing to capitalize on the Telecommunications Act of 1996. We first launched local phone service in 1997; today it is available to 4 million customers in nine markets. (Cox will launch its 10th market in 2003.) Because we pioneered cable telephony via circuit-switched technology, we have more than five years of in-the-trenches experience as a telecom provider. We’ve navigated the complexities of the business; we’ve built a technological and operational base on which to deliver phone service; we’ve delivered significant financial results from it already; and, above all, we have proved to nearly 750,000 customers that they can depend on Cox for their phone services.1 Cox recognizes the potential viability of VoIP and is evaluating the technology. We have conducted one technical trial of alternate-line phone service utilizing a hybrid-IP-circuit-switch architecture and are planning a second alternate-line trial via the cable industry’s soft-switch-based PacketCable architecture. We also are exploring development of other enhanced services that could be enabled by the VoIP architecture. Success factors A key asset to our telephony success is our upgraded network. About 90 percent of our homes-passed are at least 750 MHz, two-way activated. In our telephony markets, our ring-in-ring network architecture provides the redundancy necessary to deliver lifeline telecom services. Moreover, our phone service is network powered, offering an extra layer of reliability in the event of power outages. Our phone service meets the Bell Core reliability standard of 99.999 percent availability. We also have managed our spectrum for ample capacity for all of the services it delivers—existing services as well as advanced offerings coming in the near and distant future. We have devoted only 8 to 12 MHz of bandwidth to phone service, a relatively small but nevertheless ample space to support its present state and future growth. Back-office functions Just as important as the power of the network is the complex back-office system. These functions include: call processing, emergency 911 services, billing, data sharing, phone number administration, local number portability, operator services, directory assistance, directory listings, interexchange agreements with incumbent phone companies, calling cards and numerous other requirements. A key asset in our ability to manage the back-office functions is our integrated customer management system. We operate 100 percent of our field locations and all of our video, voice and data services on a single back-office platform. Our system ensures seamless flow of functions, including order entry, scheduling, installation, billing and service provisioning. The value of this integration is tremendous. Our customer service representatives can efficiently sell and activate all services utilizing a single system, at one time, with one phone call, and one view of all relevant customer data. We also offer customers the flexibility of receiving one bill for multiple services, choosing a single bill for each, or selecting a combination. Lastly, the back-office integration supports a high degree of automation, eliminating paper and manual processes that erode margins and cause errors and customer dissatisfaction. We will leverage our back-office systems for our VoIP services. The backbone In 2001, Cox created a companywide OC-48 IP backbone network that now transports Cox High-Speed Internet and Cox Business Internet services. (See Figure 1.) Our backbone interconnects all Cox markets and passes through other major metropolitan hubs including Chicago, Dallas, Los Angeles and New York. The network includes 11 regional data centers (RDCs) and three services data centers (SDCs). These centers provide us with both a national presence and an economic foundation for realizing significant geographic efficiencies enabled by the network. Instead of dedicated equipment in every data market, Cox regionalizes some components of service delivery into these centers. This architecture offers possibilities for further leveraging the backbone to integrate data and telephony services. In addition to hosting and sharing mail, news, web space and other components of Internet service, the SDCs potentially could serve as locations for VoIP soft-switch technology for nationwide telephony coverage. Managed VoIP vs. Internet telephony The VoIP services that telecom providers like Cox likely will offer residential customers will be delivered over managed networks with end-to-end quality-of-service (QoS), as opposed to Internet telephony. Today, Internet telephony calls are delivered from one computer to another via the public Internet. They are unmanaged and susceptible to the same slowdowns as data traffic on the Internet. Voice transmissions are treated the same as data transmissions, and providers have little control over the quality of the transmissions once they hit the Internet. Further, Internet telephony doesn’t offer emergency 911, operator services or QoS guarantees and, therefore, shouldn’t be relied upon for primary-line service. Internet telephony is essentially an enhanced feature of an Internet service, like email or web access. In the managed VoIP model, however, voice packets are labeled with identifiers. If there ever is a question of network traffic capacity at any point in the transport chain, the voice packets automatically would take priority. Today, because of its transport efficiency, IP already is utilized to carry voice—primarily in the long-distance transport network. However, for wide commercial and residential deployment all the way down to individual homes and businesses, service providers are awaiting development of the remaining pieces of technology that will ensure quality transport in the last mile. In Cox’s case, when the equipment and processes are in place for residential deployment, its commercial sales unit will be able to leverage those same systems for wider launch of VoIP services for its business customers. Likely advantages of VoIP The perceived benefits of VoIP center on the greater flexibility of VoIP technology vs. circuit-switched technology. With circuit-switched calls, ports in both the originating and receiving switches are tied up for the duration of a call, regardless of whether voice is being transported. VoIP technology uses available bandwidth more efficiently. When users aren’t talking, bandwidth is not tied up and is, therefore, available for other uses. In a broadband environment using VoIP, a single connection would enable users to talk on the phone and surf the Internet at the same time. Additionally, the packets transported over VoIP architecture are broken into capsules that are merged efficiently onto a network highway, so to speak, with traffic from other calls, emails, etc. The hardware and protocols for VoIP are largely off-the-shelf, interchangeable and being developed rapidly by numerous vendors, which would likely create cost efficiencies and new features. In comparison, circuit-switched technology is more mature. Because the functionality in the VoIP space is the same functionality driving the Internet, it is perceived as more flexible, allowing providers to take advantage of the equipment at a higher level of productivity and cost savings. The scalability of VoIP technology also has been touted as a harbinger of cost savings. For instance, circuit switches are geographically restricted, with a switch required for each service area. With VoIP technology, it is foreseen that a "soft switch" can be installed at the regional level, allowing multiple markets to utilize it, with only limited equipment required locally. This would be particularly beneficial in an operator’s smaller markets where the potential customer base doesn’t justify the cost of a switch. It would help the operator defray the significant up-front investment and recoup it faster. Another advantage of VoIP is the capacity for advanced service features. Predicted options are unified messaging; personal portals; caller ID on the TV; point-click-and-call personal directories; talking email; and customized dial tones and greetings. These value-added differentiators could position competitive local phone companies favorably against traditional carriers. A note of caution While there are several key advantages to realize with VoIP, it’s critical to remember that many of these perceived benefits are based on assumptions, and that the cost savings remain hard to quantify. There are numerous outstanding issues concerning equipment, powering options, integration of devices, etc., that make it imprudent to draw too many conclusions—especially with regard to financial considerations. We estimate that VoIP might initially offer an 8-10 percent cost improvement over circuit-switched technology for primary-line service with network powering. (See Figure 2 and Figure 3.) If you exclude the cost of network powering, network interface units (NIUs) and related functions and equipment, you likely will see savings in the 50-70 percent range. (See Figure 4 and Figure 5 ). But the resulting service would be very different from lifeline circuit-switched service. Clearly, Cox is committed to maximizing the power of its network by delivering the full complement of video, Internet and voice services. Telephony is a critical component of the triple play, and we remain completely committed to that strategy. VoIP could be a worthwhile addition to our product bundle in the future. We will begin offering VoIP telephony when it makes good business sense from a technical, financial and operational perspective, and when the technology is robust enough to integrate seamlessly with our circuit-switched operations. For more on Cox’s VoIP plans, see the June 2003 issue of Communications Technology. Waiting for VoIP BOTTOMLINE Cox is committed to delivering video, Internet and voice services. VoIP could be a worthwhile addition to that product bundle. But numerous outstanding issues concerning equipment, powering options, and integration of devices hinder its use for primary-line telephony today. Cox will offer VoIP when it makes good business sense and when the technology is robust enough to integrate seamlessly with its circuit-switched operations. VoIP Cost Factors There are many issues that will impact the amount of ultimate savings from VoIP deployment. These include: Primary or alternate line: Whether to offer primary- or alternate-line services will certainly affect cost considerations. Factors such as law enforcement issues and emergency 911 requirements may make it problematic for providers to deliver VoIP offerings only as second-line services. Powering options: There are three primary choices for powering telephone service: network powering, premises powering with batteries installed in customers’ homes, or no back-up powering, which would make customers responsible for powering. Beyond evaluation of the technical issues related to these options, further research also is needed to gauge customers’ interests and concerns with powering issues. Back-office capabilities: Companies without an integrated back-office system already in place to support phone operations face a daunting challenge to develop one. Amassing the expertise necessary to effectively deliver phone service takes years of intense learning and planning. Ultimate availability of the necessary equipment: While much of the VoIP equipment is available or in development, the technology remains incomplete to support a wide residential deployment of primary line, lifeline services today. It will probably be 2004 before the functions are sufficiently integrated to allow for robust services to be offered widely to customers, especially if a company intends to take advantage of DOCSIS 1.1 and PacketCable standards that define quality-of-service mechanisms for data and IP services, respectively. Differing technical approaches: Individual companies will have to decide which technical architecture to pursue, and how to provision, deliver and integrate VoIP-based services with existing services. Network redundancy: In Cox’s case, its ring-in-ring redundant architecture provides an important extra level of reliability for phone services. Without it, there would be some degradation in the number of minutes the service is out in a given period. However, when evaluating VoIP rollouts in new areas, companies will have to weigh the cost of installing such redundancy with the question of what level of reliability to provide. Regulatory treatment: Regulatory commissions are only now beginning to examine VoIP technology. Over the next several years, as commissions delve into questions of how to classify VoIP-based services, their decisions will have bearing on providers’ delivery of the services. Chris Bowick is the chief technology officer at Cox Communications. He may be reached at [email protected]. 1 Unless otherwise noted, subscriber numbers, penetration rates and all other statistics provided herein are as of Dec. 31, 2002.