By International Calling Cards

The Rise Of The Applications-Enabled Softswitch
BY PETE BONEE

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One of the most exciting developments in the telecommunication industry over the last year has been the emergence of the software-based Class 4 and Class 5 replacements -- collectively known as softswitches. This last year alone we have seen literally dozens of vendors offering (or claiming to offer) a softswitch. And with good reason -- softswitches represent a tremendous opportunity for service providers interested in offering voice services. These devices are generally 40 to 50 percent less expensive than traditional Class 4 or 5 switches, and are based on a distributed design so that they can be placed throughout the network or located at a centralized NOC (Network Operations Center), depending on the needs of the service provider. In addition, softswitches can scale to meet new service demand much more easily than a traditional circuit switch. However, the most exciting attribute of the softswitch is its ability to leverage a service provider's broadband access network to create and deliver new, revenue-generating services while taking advantage of the reliability and ubiquity of the PSTN.

Simply put, a softswitch is a software platform that provides call routing and call state functions, and controls connectivity between broadband IP networks and the PSTN. A softswitch platform generally runs on a carrier-grade server (such as the Netra family from Sun Microsystems) in the service provider's NOC or data center, and works in conjunction with media gateways from vendors like Cisco, Lucent, Sonus, or Tellabs.

Why Service Providers Like Softswitches
One of the primary reasons many service providers have been so enamored of these new offerings is that they have found themselves under intensifying competitive pressure, as the market has become extremely crowded. At the same time, transport and dial tone have become commodities and overall voice revenues are shrinking, leaving margins too small to make a reasonable profit. Since 80 percent of overall industry revenues still come from voice services, this has raised significant questions about future profitability. Combined with the extremely high number of new entrants into the market over the last few years, this presents service providers with an extremely formidable competitive landscape. In order to avoid being left behind, as well as being able to provide a return to their investors, most service providers are searching for ways to stem the tide of eroding voice revenues and bring the value back to voice services. To acquire and protect market share, as well as quickly penetrate new markets, providers need access to new voice applications and services that attract new customers, reduce customer churn and, most importantly, generate revenue. Generating revenue is the only thing that will help them survive this hyper-competitive market.

Several service providers have already deployed these softswitch systems. However, early softswitches have primarily been used for Internet call diversion (also known as Internet offload), which in essence provides a means to cost-effectively re-route data traffic (like dial-up Web surfers) over the service provider's network in order to free up the PSTN for voice calls. In that role, they act as a cost-reduction mechanism, rather than revenue-enhancing or service-producing system. While this is a much-needed function, there are significantly more exciting ways to implement softswitch technology.

Future Applications
Perhaps the most promising trend is softswitch vendors that are focused on offering alternatives to Class 5, rather than Class 4, switches. (In particular, softswitches that are already applications-enabled with what is frequently called "end office functionality" and more.) While this type of functionality is much harder to develop, these softswitches signal the real revolution that will bring about a new breed of hosted telephony and related services for businesses of all sizes.

Application-enabled softswitches support an ASP-like, network-hosted model for business telephony that can finally offer service providers and end users alike a cost-effective alternative to traditional phone system models -- while including new value-added services. These application-enabled softswitches are offering a range of capabilities that encompass typical business telephony functions such as Class 5 switch features, call forward, call conference, call hold, call transfer, and more. Other versions offer additional functionality with new services such as cellular-like features that are not available on a typical business phone (missed calls, inbound and outbound call logs, and the ability to click to return calls), as well as taking advantage of a business phone's LCD display to walk users through previously challenging procedures like call transfers or conference calls. Some go even further, offering all of the aforementioned items with a suite of directory-enabled applications that even support some non-telephony related functions, such as sending an e-mail response to a missed telephone call.

These new solutions are especially exciting for service providers targeting small businesses and branch offices since, for the first time, they can effectively offer these customers the ability to outsource their phone system, while retaining control of their communications capabilities through a browser-based interface. Hosted telephony and its related services finally provide businesses a robust alternative to PBX and key systems that would otherwise cost $20,000-$50,000 up front to purchase. This allows businesses to avoid these significant costs, as well as the management hassles and burdens of typical PBX/key equipment. In this business model, service providers (emerging telecom ASPs) have the ability to offer an ASP delivery model where their customers rent voice services on a month-by-month basis, and can add or subtract users, specific features, and services with the click of a mouse.

Another feature found in some of these applications-enabled softswitches is a communications portal that allows the end user to provision, manage, and order their telephony and voice services via the Web. For the end user, this means a whole new level of access to and control over their own telecom services. Through this service provider-supplied Web site, users can customize their phone, order new services, change button functionality, click-to-call on recently called and received numbers and have calls forwarded to any number they choose. In addition, managing their telecom services is much easier when compared to the incredible number of steps required to change features through a PBX or key system. Anyone who has had to spend hours programming a phone using obtuse codes or assign new features on a PBX understands the full value of being able to e-program individual phones with just a few clicks. Since the delivery mechanism and applications reside on the network, the new application or feature is available instantaneously on the phone.

This network-hosted communications portal concept has many real benefits for the service provider. All of the new services provide the personalization that makes a customer less likely to switch to another service provider than with a commodity service like Internet access or less expensive dial tone. In addition, most application management burdens are placed where they are less prone to errors -- in the hands of the customer. The communications portal also becomes an alternative selling channel offering excellent branding opportunities, especially for carriers like CLECs that are trying to protect and build market share. This network-hosted model allows providers to attack markets that have previously been out of reach, such as the small and medium-sized business market -- a market that analyst firm IDC estimates to spend $46 billion on telecom services annually. Since there is no extra customer premise equipment or client software, all the business customer needs is a broadband connection to their service provider's network -- whether fiber, DSL, fixed wireless or cable -- in order to take advantage of these network-hosted applications.

And take advantage they will. Business customers have shown a tremendous willingness to outsource functions unrelated to their core competencies, as well as a strong affinity for broadband connections. When these trends in business and technology are taken together, the bigger picture becomes clear. For those service providers looking to realize the potential of their investment in a broadband infrastructure, as well as generate the services and revenue that will allow them to compete, applications-enabled softswitches will be the key to future success.

Pete Bonee is president and CEO of Sylantro Systems. Sylantro is a software company supplying an applications-enabled softswitch. Sylantro?s ?Applications Switch? offers pre-packaged, advanced business telephony applications and also serves as a service creation platform for communications applications without the need for a Class 5 switch. Sylantro?s "revenue-ready" solutions give service providers a way to offer ASP-like services, which render today?s Centrex and PBX offerings obsolete. Sylantro is backed by premier investors including Mayfield Fund, Vanguard Venture Partners and Accel Partners.