DSL

VoDSL: Opportunities and Confusion for ISPs

Voice over DSL appears to be poised to open new markets with increased profits, but it's also prompting many ISPs to re-examine their business and their future.

by Jim Thompson

After months of testing and years of promises spurred on by the deployment of voice-compatible DSLAMs, Voice over Digital Subscriber Line (VoDSL) is finally on the launching pad. But even as the technology is ready for take-off, many ISPs seem headed for an identity crisis as they question how VoDSL will fit into their present and future business plans.

For the end-user, the lure of VoDSL is powerful. It provides up to 24 telephone lines along with high-speed data access over a single copper pair phone line. But things are not as clear for the ISP community, as many face more questions than answers.

Lethal opportunity?
There are many small ISPs whose core business is Web hosting rather than connectivity. Most of these don't even offer basic DSL service. But having direct contact with hundreds or even thousands of small business owners, whose sites they host, is a marketing opportunity that's ripe for the virtues of VoDSL.

"I never thought of myself as anything but a Web hosting service," said Larry Buzin of BuzinNet, a small ISP in Los Angeles. "Promoting VoDSL services to my customers sounds like it would be good for business, but I don't really know quite how I'd do it."

ISPs that currently offer DSL see the addition of voice — and later video — services as a sure way to increase the marketability and desirability of DSL technology. Many smaller ISPs, like BuzinNet, may find that simply making a deal to refer customers to other providers who do offer VoDSL will net them a nice side income in finder's fees. Additional revenue could conceivably be generated by providing front-end customer and billing services.

Expandomatic
Terry Lee, chairman and co-founder of Zyan Communications, a nationwide provider of DSL connectivity, sees VoDSL as a critical element for ISPs wanting to expand their business. "Delivering DSL, and soon voice services, to the small and medium sized business market is the sweet spot of our entire marketing plan," he said. "VoDSL will drive revenue in this segment to new heights over the next year or two."

Lee added that Zyan Communicatrions is exploring the possibilities of partnering or merging with a CLEC in order to insure long-term viability. Whether to form such partnerships or to compete directly is yet another question being asked by many ISPs. Although the answer is fraught with uncertainties, the potential rewards can be substantial.

The courage (and $$) to change
"The dividing line is really the point at which voice services are peeled-off from the data packets," says Gary Tauss, CEO of Tollbridge Technologies. "ISPs who opt to buy or rent the equipment necessary to bring voice messages all the way to their facility . . . stand to make $60-65 per phone line per month on top of their current DSL revenue. That amounts to an additional $500 per month, based on an average of eight lines, for small business customers."

By virtue of owning the voice gateways that perform critical circuit-packet/packet-circuit translation, ISPs can become CLECs, communicating directly with ILEC class 5 switches, and, in some cases, replace CLECs in the voice services revenue stream. "Those (ISPs) willing to do this have the chance of growing up to become the next generation Qwests," concluded Tauss.

Lee agrees, adding that VoDSL marks the beginning of an evolutionary process in the ISP space. "Some ISPs will emerge as next generation telecommunications companies," said Lee. "It's not a friendly world. Competition dictates that the ability to offer a variety of broadband services may be the key to continued survival for many ISPs."

Perilous journey
Even the large ISPs are entering the waters with a certain amount of trepidation. Everyone seems to agree that the long-term rewards are enticing, but they also recognize that the transition brings with it a myriad of concerns.

"We're seriously considering all aspects of the VoDSL opportunity but it's a complex situation," said Kurt Rahn, Sr. manager of public relations for EarthLink. "The issues range from overall corporate strategy and identity, to hardware selection. There are also new regulatory issues inherent in providing telecommunications services that we haven't had to deal with before."

Many ISPs are sitting on the sidelines as they wait for the next wave of consumer DSL products. According to Lee, the industry will get a major boost from sophisticated multi-function, self-contained IP-phones, which he estimates will be available in the next nine to twelve months.

"As an ISP, we plan to offer one-stop shopping for all the customer's broadband needs, from basic telephony service to hardware like IADs (Integrate Access Devices) and IP-phones, to add-on services like automated attendant, transfer, voice mail, caller ID, and all the other features you'd expect from a PBX-based system," said Lee. "As their service provider, the customer is going to call us first. Why let them go anywhere else?"

Cautious outlook
Others see a much longer fuse on the VoDSL explosion. Greg Langdon of Efficient Networks, a manufacturer of DSL CPE (Customer Premises Equipment), doesn't believe enough end-users are willing to immediately throw out their old telecom equipment to make IP technology viable — at least not in the near term. "Some 80 to 85 percent of the revenue in voice services is in long distance billing, which is served fine by simply providing a dial tone with your DSL, so profit from the IP-based features are likely to be a long time in coming," he said.

Rory Fox of Covad Communications agrees that basic telephone service will be the biggest revenue producer. He added, however, that VoDSL is a watershed event that signals the beginning of a new era for ISPs. "This is the big one!" he said. "Once the infrastructure is in place, it's voice that's going to generate the profits that many ISPs have not shown, and need to show, to remain financially viable in the long term. They own the customers, and voice services are the best new source of revenue that's likely to come along for a while."

Along with its promise of profits, VoDSL poses a number of questions without providing easy answers. While the rewards can be substantial, there is a price attached. In addition to capital outlay for new equipment, many ISPs will find the price also includes changing their basic business strategy and their outlook for the future. It's a high stakes game, but just like the lottery, if you don't play, you can't win.

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