EVERY VOICE OVER IP CALL that is routed through the PSTN is a lost opportunity, says Dr. Baruch Sterman, CEO of Kayote Networks, a company which can provide and operate a complete VOIP system for any size broadband operator.
Cable companies and other VOIP companies should be peering, he says, working together to make sure that calls placed on a cable system, for example, are routed over IP from cable company to cable company. Not only will it save money, but it will boost the feature set.
Every call that hits the PSTN will have features VOIP providers would love to introduce, like videoconferencing, stripped out of it.
And what about the offerings of Skype and Vonage and their ilk? They’d do well to peer as well, says Sterman – if only they would set their goal of global telecom domination aside.
The following is an edited transcript of a conversation between Cartt.ca editor and publisher Greg O’Brien and Dr. Sterman at last week’s Canadian Telecom Summit.
But, companies beyond the borders of North America are peering and innovating and this is where the new VOIP developments will come from.
Greg O’Brien: What does the voice over IP market look like outside of North America?
Baruch Sterman: It’s exploding. And in fact, I would argue that the VOIP industry outside North America is really going to be driving innovation because voice over IP still focuses, as it’s done for the last 10 years, on cost savings.
And quite frankly in North America, there’s not much more that you can save. On the wholesale level, for example, if you’re a good buyer, you can save on termination domestically three, four, five-tenths of a percent. There’s not much there that you can look to save.
But for somebody in Europe, like an ex-patriot Pakistani living in Norway who wants to call home, that could be upwards of 10 cents a minute. So, if he can find a broadband provider that can save him that money, whether it’s Skype whether it’s a local internet service provider like Telio in Norway – that can give him calls at a reduced rate or wow even for free, then that’s a very, very major driver. And the minute you get that user base, then you can up-sell them and offer them value-add services and applications which they’ll be willing to pay more for.
GOB: Such as?
BS: Better than PSTN quality voice. Broadband voice. Video conferencing is something that people pay for. Voice mail, I know is something that Skype offers. And off-net traffic in general where on-net traffic will be given away for free more as a marketing device than anything else.
GOB: Now in Canada, the traditional carriers have begun to suffer in terms of customer losses to voice over IP providers, whether it’s Vonage, whether it’s Rogers Cable whether it’s Skype. Are you seeing the same type of thing in other countries around the world? Or are the traditional telcos adapting and offering it themselves?
BS: We are infrastructure and backbone service provider for the Internet voice over broadband providers. So, you know, the better they do, they better we do. We’re happy about the transition. I think that everybody is going to see that there are going to be minutes that are going off of the public telephone network and that it carries either partially or totally over the IP network.
And one of the exciting cases in point is the initiative by the five cable companies in Holland to peer. They all offer voice over broadband services. And they’ve decided to peer together and keep the traffic that goes between them IP-to-IP, end-to-end.
GOB: Some of the operators in North America have thought about that and there’s a committee at the CableLabs level to study it, but they haven’t really gone ahead and done anything yet.
BS: Correct. (Kayote) put in a bid on that and we’re very hopeful that it’ll happen. But quite frankly, like I said before, I think that you’re going to see things move a lot quicker outside of North America. You’re going to probably see peering happen more quickly in places in France, Italy, Brazil. You’ll probably see some peering organizations come up in those places by the end of the year.
As far as CableLabs is concerned, I would be surprised if you see any movement over the next few years.
GOB: And is that mainly due to what you said, that there are just more costs to be saved overseas than here?
BS: That is part of it. But there is, I think, an inertia that you find with the large tier one carriers here in North America. They like to plan things to death. Then you’ve got these roundtable discussions where the end result is "okay let’s come back in nine months, with recommendations and so forth."
Quite frankly, the smaller players outside of North America are just much more aggressive while the smaller players inside North America are very worried about not being stepped on by the giant elephant. And the giant elephants move like giant elephants move.
But you can have these small upstarts and again Telio is a great example in Norway and Holland and they’re also coming up in other places in Scandinavia. These guys have voice over broadband package and they’ve got 9% penetration in Norway (in three years).
GOB: That sounds good.
BS: That’s amazing. In absolute numbers, it’s not all that much, but take something like Vonage, percentage wise, the thing that Vonage has right now is pretty miniscule. In North America, it’s not even 1%.
GOB: Well, I’ve heard folks at Rogers call it a rounding error.
BS: Exactly, exactly.
GOB: Skype is often talked about as "if only everyone would sign onto Skype, then the telecom business is going to be kaput," because they basically give voice away. What’s your feeling about that and its potential to disrupt?
BS: I have mixed feelings about Skype. First of all, Skype relies on probably the most expensive telephone that anybody’s every bought. If you want to spend $1,000 for your handset and that’s what you want to use your PC for, then Skype is for you. On the other hand, Skype’s an innovative company. So, I think that they’ll figure out how to drive more features into the communication experience that people may eventually be willing to pay for. Skype is an example of somebody who doesn’t want to work and play well with others, and Vonage is another example of that.
In some ways, that’s an all or nothing bid, right? Global domination or nothing.
So, the idea behind voice over IP peering is that Internet service providers around the globe can join with each other to share traffic, each one competing in their own space, whether that’s geographic, whether it’s after space, whether it’s feature based, whatever it is. Each one tries to carve out their own niche competing together, but they’re also willing to work together to give an overall experience and global reach – which is far more compelling than a company like Skype.
Take SMS as an example. As long as it was only on single networks where each provider could only give SMS to their own user base, it never took off. The minute that SMS addressed the issues of interoperability and interconnectivity between networks, it became, you know, the killer application that it is.
The same, in a sense, is true with voice over IP. You’ve got these top networks right now that are running voice over IP, but they’re not really working together.
GOB: But Skype or Vonage don’t own any network. They can’t really peer can they because they’re always on somebody else’s network?
BS: It’s a virtual peering. There’s nothing that would stop Vonage and Skype from peering with each other – other than the fact that they both want to rule the world.
And until IP calls remain IP to IP, end to end, then all of the potential features are going to be lost. The minute that you go out to the PSTN even for the smallest leg in a call, you drop to the lowest common denominator which is whole quality voice. No video, no computer date integration…
GOB: And you got to pay the interconnection fees.
BS: And you have inefficiencies because you have conversions back and forth. So, I would say that peering is not the future of voice over IP. It’s pre-requisite to future of voice over IP. The future is going to be only those that have great imaginations to put together tremendous features remote.
GOB: So where does Kayote come into this?
BS: We provide outsourced voice over IP interconnectivity services, which is a mouthful. But what we really mean by that is we believe that the complexities of voice over IP today, as it stands now and it’ll probably be for quite some time, make it such that we don’t think that you should be running your own voice over IP network. We think that it makes sense not to invest too much in capex, in resources, in expertise. Because if you try to, you’re going to get lost.
GOB: It’s funny the large companies, large cable companies and telephone companies – they’re all doing it themselves. But the small cable companies here in Canada have all farmed it out to a third party provider.
BS: Our argument would be that even for the larger companies it makes sense. The really, really large companies are looking at it (such as BT and Swisscom).
Issues like security and peering the directory services are important but they are going to have to be done by trust of a mutual third party. So, if you’re going to do that anyway, why should you have to invest in a team that’s going to do troubleshooting and interoperability issues and stuff? It probably makes sense in our opinion, to outsource this.
GOB: You’re asking a lot of the network operator. The network owners who have always owned, always operated, always done everything with their network to suddenly give it over, that’s a tough sell.
BS: You hit the nail on the head. The challenge that a company that Kayote is going to have is not a technical challenge. I think that we’ve proven ourselves that we can do that. We’ve been in the voice over IP business since voice over IP was around, so, technically we’re pretty okay. The challenge is a marketing and educational challenge.
GOB: It’s interesting to think that Rogers or Bell can outsource this. From your point of view, the small guys are certainly ahead of the same.
BS: We’re really in the infancy now in terms of voice over IP. We haven’t dealt with the features yet. All the hardware and the software is very, very much evolving. We haven’t even begun to touch the security issues yet.
GOB: Well, if you look at the VOIP feature set, I mean its pretty much the same as what’s already out there and when people are thinking they’re going to voice, they’re going for price only.
BS: Right.
