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VoIP: the new tornado    [9:23:28 PM]

In Why defend the bell system? Om Malik writes: “the economics of the computer industry have finally come to the telecom business”.  It’s been coming for some time, of course.  Versatel Networks, where I have been the VP of marketing for the last 18 months, ships a product which is a media gateway / media server combo that uses an ordinary single board computer to drive it.  During the past 2 years we have updated that processor three times (it’s now quite a bit more powerful than the original), and seen the price drop.  That’s because it’s an ordinary Intel processor and memory.  We’re riding the Moore Curve.

The other piece of the puzzle, when speaking about the economics of the computer industry, is modularity.  Versatel’s product, for instance, is built from the off-the-shelf components, with the exception of the software layer and the trunk interfaces.  Telecom equipment manufacturers used to design everything themselves.  Now, just like the PC industry, there are a number of manufacturers building specialized components such as media cards, and protocol gateways, that you can simply drop into your design as you would include a component like a video card in a PC design.  Specialized manufacturers can produce sophisticated designs and sell them broadly, driving prices down again.

Versatel’s products sell for 10’s or 100’s of thousands of dollars.  They are highly sophisticated pieces of equipment that several years ago would have sold for millions.  Thank goodness for PC economics.

But we’re not done yet!  As processing power increases, the hardware components migrate to software.  The 500 channel media card in Versatel’s product can be replaced by a software component, today, that performs the functions of those DSPs using the general purpose processor in the single board computer.  What a way to drive cost out of the system! More and more of the functionality that was performed by dedicated hardware will ultimately be done in software.

And what will that do to the industry?  Well, as an example, today I run a small telephone system myself.  I have a 700 Mhz rackmount Intel processor system running Linux at a colo facility in downtown Ottawa.  Shortly I will be adding a T1 interface to it.  It runs the asterisk open-source PBX software.  With this system I can probably accomodate up to 200 subscribers using it as their primary telephone system.  Total cost — $1600.

VoIP is a tornado tearing through the heart of the telecom industry.  Who or what will be left standing at the end is anyone’s guess right now.  If the incumbents, however, dive into VoIP without a plan to sustain margins as the inevitable price war sets in, then they have only themselves to blame.

 

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