Softswitch market gaining momentum

As major carriers adopt softswitches, the big beneficiaries will be businesses - at least in the short term.

Cable TV providers such as Cablevision and new carriers such as Vonage sell mostly residential IP voice services based on this technology, but larger providers such as the RBOCs, Sprint and AT&T are aiming initially at corporate customers.

The most likely voice service to pop up first will be IP Centrex, with all the features of traditional Centrex, plus Web interfaces to add and delete services, click-to-call, configure phones, see a list of who called, access calendaring and set the service to find users at different numbers.

"These are services impossible to deliver with traditional circuit-switched networks," says Kevin Mitchell, an analyst at Infonetics.

Softswitches are carrier-class servers separate from the generalized hardware they control, such as packet switches and media gateways. In traditional circuit-switched voice networks, the software that governs services is tied to the switching gear. Also with softswitches controlling IP voice, integrating voice with data services is easier because they are both based on IP packets.

In the long term, converting carrier voice networks to IP will result in streamlined networks and the opportunity to quickly develop and deploy new services. Tough times in the telecom business have slowed adoption of these softswitches by limiting capital spending over the past two years, says Tom Valovic, an analyst with IDC. But carriers have discovered that specific services such as IP Centrex can pay for themselves quickly, he says. "These decisions are based on new-service revenues," Valovic says, not on long-term network upgrades that will yield efficiencies eventually.

While capital spending won't increase significantly, providers likely will spend a larger percentage of their budgets on IP gear, including softswitches, says Mark Kaish, BellSouth's vice president of data services.

As a result, 2004 is expected to be a big year for softswitches in the U.S. and Canada, according to Infonetics, with revenues expected to grow by 50%. Spending on the gear was $134 million last year, a 13% jump from the year before, so it looks as if the technology might be turning a corner, Mitchell says. But at $134 million, softswitch spending is a pittance compared with the $49 billion overall spending by carriers on network equipment.

Smaller carriers that have no traditional phone networks and can dive in with pure IP services at the start are pressuring RBOCs, offering more features at lower prices. Vonage offers unlimited calling for businesses plus a fax line for $50 per month. "Vonage drummed up a lot of interest in VoIP and the cable companies followed suit. [The RBOCs] had to come across with something," to indicate they had IP voice plans as well, Valovic says. 

The RBOCs have a different view. In the long term, IP voice at a reduced price will not be attractive as regulators sort out how to treat packet voice, Kaish says. In the end, the features unique to IP voice will be the reason customers buy it, and at least initially that is business.