VoIP SWITCH: Overcoming Reluctance

The voice over IP (VoIP) equipment industry took a quantum leap in year 2002—03,
driven by significant deployments in ILD operations. The VoIP equipment market,
which was negligible in the previous fiscal, registered a healthy first year
sales of Rs 48 crore. Unit-wise, an estimated 77,000 ports of VoIP equipment
were shipped during the fiscal.

VoIP
deployments during the fiscal 2002—03 were primarily led by the ILD operators.
Data Access, in particular, focussed heavily on this new technology. Its core
infrastructure, connecting the US, the UK, and Japan with points of presences (POPs)
in India was totally based on VoIP technology. The VoIP vendor, which benefited
out of this full-throttle VoIP play by Data Access was Israeli player Vocaltec
Communications. Vocaltec received as many as three separate deals from Data
Access during a short period of 10 months. And thus, it clearly was the market
leader in India during the fiscal. It effectively captured 65 percent of the
VoIP equipment market.

The other two ILD players, though late to take up VoIP, had begun the process
of embracing VoIP towards the end of the fiscal. In particular, Bharti Telesonic
took upon itself to regain grounds lost to Data Access, by going for a
significant deployment during the last quarter. VSNL, which had gone for
rudimentary VoIP equipment towards the earlier part of the fiscal, was also
looking at a more aggressive VoIP act in the forthcoming months of fiscal 2003.

The market today is in very early stages. Deals in the current year could go
in any direction. And each of the deals could result in dramatic shifts in
standings of players in the market. However, fiscal 2002—03 ended with
Vocaltec taking market leadership with 65 percent market share, followed by
Ericsson at 14 percent and Cisco Systems at 10 percent.

Key Trends

n Industry: The
VoIP industry during 2002—03 was full of action, with more than a dozen of
vendors actively competing for the pie. Almost all global players were vying for
both marketshare as well as mindshare. There were two types of players. The IP
players like Cisco, Vocaltec, Commworks, Sonus, Winphoria, Nuera, Arelnet, and
Verso Technologies are holding the VoIP-only banner. On the other hand, the
traditional TDM switch vendors like Alcatel, Siemens, Ericsson, Motorola, and
Nortel prescribe a more sequential migration from TDM to VoIP. The second group
likes to call its VoIP product lines (in many cases TDM switches with VoIP
capability) as NGN switches. During 2002—03, Vocaltec, Cisco, Veraz and Verso
were the VoIP vendors which achieved the TEC certification for deployments in
India. The TEC certification is required if the VoIP equipment being implemented
is to interconnect with BSNL/MTNL/VSNL equipment, the incumbent telcos of India.

n Drivers: Though
worldwide the drivers of VoIP deployments by carriers are mainly cost reduction,
network utilization and IP-based services, in India, the main driver has been
better network utilization. Carriers want optimum usage of their network
capacities. The new competitive ILD players like Data Access are in the market
with minimal capex, leasing international trunks from others. They want maximum
value out of the international bandwidth that they have leased. Incumbents like
VSNL and BSNL own the trunks for ILD and NLD and already have significant
traffic utilization of the capacities. They want further usage optimization of
their current capacities before going in for further capex. New integrated
telecom service providers have also emerged. Bharti has built both international
and national long-distance capacities, while Reliance Infocomm and Tata
Teleservices have put in national and long-distance capacities. In addition,
there are also utility companies and cellular operators that have invested in
their own national/intra-circle trunks. These companies have just started
filling up their capacities with traffic and at the moment are not in a hurry to
deploy VoIP. Cost reduction and IP services are not major differentiators in
India. TDM switches too have become dirt cheap, and with the number of lines
that operators go for in India, TDM switches have become even more
cost-effective. And value-added services have not yet become that important for
Indian service providers.

n Technology: VoIP
equipment have undergone a bifurcation. Today, there are two clear segments of
VoIP equipment. One, the VoIP gateways and gatekeepers installed mainly in the
Class 4 Tax/Tandem layer of telecom networks. Two, the VoIP softswitches
deployed by operators in the Class 5 layer of telecom networks. These switches
have a lot more intelligence as compared to Class 4 switches. In addition to the
traditional VoIP vendors, the Class 5 softswitches have an array of well-known
traditional TDM switch vendors vying for this crucial piece of next-generation
telecom network.

Deployment action in this space has also begun in India with the Tatas
conducting a commercial trial during the last fiscal. H.323-based equipment
still rule the roost, with SIP-based equipment beginning to make a mark. With
several standards of VoIP being there in the market, equipment coming out in the
market have support for several of these standards.

n Prices: The
switching space in India is a highly competitive market, with prices of TDM
switches hitting rock bottom. Though VoIP equipment are just getting deployed in
India, they compete with TDM switches. Thus, TDM switch prices play a
significant role in price determination of VoIP equipment. And VoIP vendors
targeting India have not had the buffer of a new market when it comes to price
competitiveness. VoIP equipment prices are calculated for every unit of port
equivalent to every DSO circuit or line in the case of TDM switches. Per port
prices of VoIP gateways during fiscal 2002—03 varied from Rs 4,500—7,000
($90—150), depending on the size of deployment.

Forecast

It was the government’s dramatic go-ahead to VoIP implementation by both
ILD operators and ISPs in April 2002, that gave impetus to VoIP implemetation in
the service provider space. The market, though still at an infantile stage, is
growing very fast. iLocus estimates India’s VoIP traffic in calendar 2003 to
touch 1320 million minutes.

In fiscal 2003—04, it is expected that ILD operators will come under
intense pressure from competition, compelling them to deploy VoIP equipment.
Data Access has signed a global framework deal with Vocaltec for supplying $8
million worth of equipment for its global expansion during the currrent fiscal.
A part of this deal has already been implemented. VSNL has also started
deploying Alcatel’s NGN-ready switches in its network.

What could make fiscal 2003—04 an even better year for VoIP is the fact
that for the first time, one is likely to see significant rollouts of VoIP in
national and local networks. India’s largest operator, BSNL, which had already
deployed VoIP equipment in six locations during the last fiscal, could go in for
expansions. Tata Teleservices is known to be carrying out a commercial trial of
the next-generation softswitch from Winphoria Networks (now acquired by
Motorola) in its Western India network. Commercial induction is expected around
mid-2003. Aksh Broadband, a unique broadband operator in the state of Rajasthan,
has already ordered for Versio Technologies’ Clarent softswitches. The deal
worth $5.7 million (licences for 256,000 endpoints) is for an end-user level
implementation of VoIP across Rajasthan which is slated to be completed by end
2004.

Considering the already booked orders and the likely VoIP implementations
from various service providers, Voice&Data estimates that the market for
VoIP equipment will grow by over 100 percent to touch Rs 100 crore in fiscal
2003—04.

Nareshchandra Laishram