Integrated value-added services need ATM
Earlier this year, President Clinton signed the Telecommunications Bill of 1996 and deregulated the entire industry. The ultimate consequences of this deregulation are unknown, but it is creating competition and changing the way companies operate. Witness the recent mergers of regional Bell operating companies; cable companies entering the phone business; competitive access providers acquiring Internet service providers; long-distance companies entering the local market; and local exchange service providers vying for long-distance business.
With increased competition and changing parameters, network service providers need to find new high-revenue, high-margin services to differentiate themselves and offer true value to their customers. They cannot separate from the pack with simple voice service--their real opportunity lies in data services.
Data services will be the battleground of the future. Data traffic is growing at 30% per year, compared to voice traffic`s annual growth of only 3%. By 1998, data traffic will equal voice traffic. And by 2005, forecasters say that data traffic will so exceed voice traffic that voice service will be given away to customers to earn their data business. Imagine: a $60-billion market will shift from being voice-centric to data-centric in less than a decade.
In the short term, whoever wins the data business will win the voice business too. But a new service provider entering a Bell company`s territory will not be able to win away voice business just by offering voice service at a 10% discount. However, a new service provider that offers a suite of data services--and provides that service reliably and economically--can leverage the relationship to win traditional voice business as well. The aggressive Bell companies are responding defensively. They need to offer data services to keep their best customers.
Of course, service providers will face challenges in selling data services. They need to move from voice-centric thinking to a value-added data services model. They have to re-train their technicians and installers. They have to understand how to market and sell data services. They have to stay on top of new technology. They also have to overcome the preconception that they will not be able to offer high-quality data services.
Service providers do have the ability to offer high-quality services at the right price. They will be successful in offering data services because the market is ready for it--end-users need to outsource unnecessary functions and focus on their core competencies.
There also exists today a compelling technology--Asynchronous Transfer Mode (ATM)--that can deliver on the promise to integrate voice, video and data over the same pipe. ATM--an infrastructure specifically designed for service providers--is the most efficient transport available. It will facilitate migration to the integrated value-added services model because it is a bandwidth-on-demand technology. The bandwidth that customers need is available when they need it, while the bandwidth they don`t use is available for someone else to use.
Thus, ATM changes the telephone system; rather than having to support maximum load, it only has to support statistical average load, which enables the most efficient use of capital. Available-bit-rate technology, a critical part of ATM`s bandwidth-on-demand, allows the network to degrade gracefully when the network gets congested. Consequently, service providers can oversubscribe an ATM network and take advantage of greater economies of scale to offer less-expensive service to their customers. Moreover, ATM has quality-of-service capabilities that allow providers to offer service level guarantees to their customers.
Finally, ATM is the only wide area technology that looks like a local area network (LAN). In other words, hardware equipment and software services can be moved from the corporate environment to the service provider`s central office, and end-users can receive networking services as if the equipment were located on their premises.
The efficient, economical way to provide value-added services would make use of a service-enabling platform at the edge of the ATM network. This platform would have to include the following features:
Transport capability to provide efficient use of the ATM infrastructure by converting frames to cells at wire speed;
The ability to service multiple customers on a single box without compromising the security of customers` data;
Intelligence to provide value-added services, such as bridging, routing, management capabilities, security, and usage-based billing; and
Flexibility so it could evolve technologically and expand to enable new services.
The bottom line
From the end-user`s perspective, consider the construction of a high-speed network to interconnect four sites in New York City. One option would be to interconnect the sites via T3 lines. Depending on the service provider, the end-user would pay $18,000 to $24,000 a month for 45-Mbit/sec service. An alternative would be to inverse-multiplex a number of T1 lines. To mesh six T1 lines, the end-user would pay $15,000 to $18,000 a month. Neither of these estimates includes the cost of purchasing customer premises equipment or the cost of staff to design, operate and manage a metropolitan area network.
Now consider a transparent LAN solution based on a value-added services model. The cost is typically $750 to $1000 per month per connection. For the four sites in New York City, the cost would be $3000 to $4000 per month. The end-user would incur no equipment cost, and the only expertise required would be a LAN administrator. With business cases between local access and transport areas, or nationwide, the savings are just as dramatic, although the costs for all options are higher.
Consider also the service provider`s situation. By creating LAN interconnection with transparent LAN implementation, a service provider could dramatically lower the cost of service; transparent LAN (TLAN) is one-fourth to one-fifth the cost of today`s high-speed leased lines. TLAN is a cost-effective alternative to a traditional wide area network and is simpler to own, manage, and operate.
Service providers need to leverage the access link by filling the ATM pipe with data from multiple customers and by layering value-added services to further leverage return and economies of scale. They need to deploy a structured data service that serves multiple customers from a single access platform at lower cost than private network alternatives.
With the infrastructure in place to offer an integrated services model, the next step would be to maximize revenue and profit by offering additional value-added services incrementally, on a per fee basis. Such services could include Internet and intranet access, virtual private networks, e-mail, remote dial-in service, data archiving, voice-over-ATM and videoconferencing.
Service providers could profitably offer basic services, such as TLAN service or Internet and intranet access. With the infrastructure in place, they could offer additional services as their expertise in data services increased. They could build a model that provided customers with the high-quality services they need at the lowest cost, taking advantage of economies of scale and leveraging the infrastructure to increase profits today and in the future. n