Next-Generation Exchange-Based IP Interconnection

by Brian Partridge | March 2011

I. The IP Era Requires an Evolved Interconnect Model

Network Effect: The phenomenon whereby a service becomes more valuable as more people use it, thus encouraging ever-increasing numbers of adopters.

The IP era of networks and services is advancing so fast it’s become hard to keep up with end-user demand. Network service providers, IP product and service vendors, and enterprise IT/network managers alike are scrambling to respond to their stakeholders’ increasing demand for ubiquitous access to rich IP services. From its VoIP, NGN and IMS beginnings to the current landscape of IP services—including fixed and mobile high-definition (HD) voice, unified communications (UC), HD video calling, video conferencing and telepresence, collaboration, presence, IM, rich communication suite (RCS) and RCS-e, combining the best the Web and communications services have to offer—the IP network platform for advanced services has limitless possibilities we are just beginning to fully comprehend.

After the initial invention and establishment of the utility possible with advanced IP services, the next critical step is expanding the reach of those services on a fully interconnected cross-network basis to maximize their overall value to their communities of interest. This is where we find ourselves today. The power of network effects has been an underlying pillar of the telecommunications industry since its invention: The value of the telephone network rose as more people had access to telephones and the ability to communicate over a common network—the PSTN.

Fast-forward to 2010 and it’s a bit of déjà vu. Service providers, vendors and enterprises must now make critical decisions on the most economical choices to expand their communities of interest to match the network effect that allows us to pick up a telephone and reach anyone, anywhere in the world. There is no PSTN equivalent for the NGN, VoIP and IMS worlds; instead, we have “islands of IP” that limit the overall value of an IP service to the on-net community of interest. The magnitude of this challenge has attracted several ancillary service providers to build hub-based IP peering communities to reduce the complexities associated with bridging islands of IP.

The choices made around IP interconnection architecture are critical to ensure a smooth handoff between disparate IP networks and deliver true service mobility, regardless of user location or access method. The advantages of exchange-based interconnection based on electronic number mapping (ENUM) directories are real and achievable today. Providers all around the world are beginning to embrace exchange-based interconnection in order to enhance their innovative services, reduce operational expenses, increase security and distinguish their brand position.

In this whitepaper, Yankee Group reviews:

• The concept of multilateral exchange-based IP interconnection models

• Current market adoption and opportunity for advanced IP services

• Critical decision-making criteria for choosing a hub-based interconnect solution provider

• The current market landscape of hub-based interconnect solutions

• An exchange-based interconnect study

This custom publication has been sponsored by XConnect.

NOTE ON TERMINOLOGY • Limited reach: Advanced services are limited in their ability to drive network effects because they cannot rely on the traditional The terms “exchange,” “IPX,” “federation” and “hub” are often used interchangeably to describe a hub-and-spoke-based PSTN for interconnection among service providers. Without an approach to facilitate scalable and efficient interconnection interconnection among different networks, revenue and margin between multiple communications entities (e.g., operators, opportunities will be limited to their home subscriber footprint. enterprises). This approach involves a central entity (e.g., hub, exchange, federation provider), thereby reducing the technical • Revenue potential: These services will become an increasingly and commercial overhead and costs of multiple direct bilateral/ large portion of telecom operator revenue as legacy services peering arrangements. We have predominately used the word such as POTS and SMS give way to services such as voice over “exchange” in this report. The services offered by the exchange broadband (VoBB) and Rich Communication Suite (RCS). can vary enormously, as outlined in this document. Network operators that have made money selling TDM-based voice services are at the beginning stages of a multi-year transition II. IP Services Will Dominate the to the all-IP networks of the future. As networks evolve to IP, New Services Landscape so do the services. These new services cannot rely on the PSTN for interconnection, creating a strategic need for multi-layered IP It is not news that circuit-switched networks designed for high- federation services. quality voice are giving way to the next generation of networks built on IP. Network traffic patterns will shift from predominantly TDM III. Multilateral Exchange-Based to all-IP over the next several years, providing opportunities for Interconnect: A Technology Review service providers that provide hub-based interconnect capabilities. This is true for both the fixed and wireless access markets, where To replicate the success of TDM services in an IP world, service much of today’s traffic is TDM but where mobile broadband providers and enterprises must consider how they will interconnect adoption, mobile soft switching, IMS services and over-the-top their islands of IP through bilateral, multilateral or hub-based (OTT) services are gaining momentum. It also holds true in interconnection arrangements. While the earliest attempts at IP enterprise markets, where UC and videoconferencing vendors are peering were focused squarely on connecting disparate islands of actively working with peering federation providers to bridge their VoIP, NGN and IMS the next wave of solutions must expand their communities of users. purview to include a much fuller list of short- and long-tail services. An important difference between VoIP peering and advanced all-IP New IP Services Call for New service interconnection is that VoIP services could pass from IP to Interworking Arrangements TDM and back to IP through the use of TDM-to-IP gateways, but for advanced services such as video calling or UC, a session must The proliferation of broadband access networks has fueled adoption remain on IP to maintain service continuity between different access of advanced services such as instant messaging (IM), HD voice, networks and endpoints. social media, HD and LD video calling and conferencing, and OTT IP communications services such as Vonage, Google Talk and Skype. We are entering a period of time in which next-generation hub-based These services represent the next generation of revenue drivers IP interconnection models will become a critical success factor and for service providers as the PSTN is retired, and fixed and mobile TDM interconnections will become a dead end. Next-generation broadband IP networks become ubiquitous. hub-based IP interconnect exchanges should not be confused with Internet peering or Internet eXchange (IX) peering points where These new services are all characterized by the following attributes: Internet networks are interconnected. An IP IX only provides • Appeal: The services are highly appealing to enterprises and standard IP/Ethernet Layer 1/2/3 network layer interconnects where consumers based on their prolific use of IP, enabling rich real- IP packets are exchanged. An interconnect exchange will provide time voice, video and messaging capabilities and support for additional services beyond the network layer, such as service-aware mobile payments, Web 2.0 mash-up services and services that protocol interworking and interoperability, ENUM registry, security, include telecom operator APIs such as location and presence. identity and commercial/clearinghouse functions.

The benefits of IP services come with new security risks such as toll A hub-based provider of ENUM registries and multi-protocol, fraud, identity theft, spam over IP telephony (SPIT) and denial-of- multi-vendor VoIP/NGN interconnection infrastructure can service (DoS) attacks. Traditional network security measures like enable communications service providers to join multilateral firewalls and intrusion prevention systems (IPSs) mitigate some of those interconnection relationships with IP service providers, either at the risks, but they are not designed to handle complex signaling/media regional level or around the globe. sessions using protocols such as SIP. IP-to-IP interconnect requires some interworking in cases where different SIP signaling variants or the How Multilateral Hub-Based Interconnect Works legacy H.323 protocol are used by IP network elements. Multilateral hub-based federations operated by neutral third parties,

Soon, consumers and enterprises alike will require critical services infrastructure vendors or wholesale service providers enable delivered over IP. The inevitable adoption of IP services is good for service providers to more intelligently route sessions in the most service providers, who will reap economic value from the services’ cost-effective manner and increase the reach of services for their popularity. The realities of an iterative transition of this magnitude member subscribers. Their role is to provide a central point of are complex. Hub-based IP interconnect can help reduce many of the interconnection among like-minded operators at the signaling layer, complexities by providing a ready-made environment to maximize media layer or both. service reach and interconnection costs. By combining interoperability At the heart of today’s hub-based peering solutions are ENUM services with ENUM, interconnection delivers the features, quality registries, SIP signaling hubs and media layer interconnection and cost benefits of IP and eliminates use of the PSTN as the medium hubs (internetwork packet exchange, or IPX, networks) among through which calls are delivered between operators. different service providers. For example, Exhibit 1 shows the

Service providers face a number of critical investment decisions GSMA’s IPX Service architecture, where PathFinder is the global about how best to manage the transition to IP in order to maximize carrier ENUM registry and media is connected via private IPX profitability of existing services, minimize operational complexity networks or via the Internet. and open the doors to new services and business models not yet commercialized. One of these critical decisions is choosing the method(s) for interconnection of IP services.

Exhibit 1: GSMA IPX Service Source: Yankee Group, 2011 Trusted Environment

PathFinder

ISP ISP FNO FNO MNO IPX2 MNO

Local IM IM Local ENUM IPX1 IPX3 ENUM Private IPX Domain MMS MMS

Internet Voice VS Voice VS

Mobile Subscribers Mobile Subscribers

To clarify, IPX is not responsible for offering end-user services; it term ENUM often leads to confusion, given all the different types provides the interconnect between service providers that offer of ENUM in the marketplace and how they relate to intra-carrier end-user services. IPX supports various functions so a customer peering architectures (see Exhibit 2). of Service Provider A can set up and complete a session with a Proponents of ENUM have espoused the benefits of operational customer of Service Provider B. IP services transported over IPX cost savings and service quality made possible by avoiding traditional must be standardized and documented in a service specification to PSTN routing infrastructure (i.e., SS7) to complete VoIP calls ensure interoperability. destined for a non-local VoIP endpoint. For some, this has been IPX generally consist of two layers: a benefit in search of a problem to address, as the islands of VoIP have been small enough that the percentage of originating VoIP calls • The transport layer provides connectivity between two service that are actually destined for an IP endpoint are sufficiently small— providers. This layer provides a guaranteed QoS bit-pipe function. estimates range from 15 percent to less than 5 percent of overall call • The service layer provides establishment of connections and volume, depending on the operator. From a wholesale interconnect management of billing and settlements for a service. perspective, though, the benefits gained from direct or hub-based IP interconnect (e.g., cost, quality) are applicable for voice even if the Around these core assets, multilateral peering providers compete endpoint is not IP, provided the interconnect is IP-enabled. based on the flexibility of their offerings, in particular as it relates to security, settlement models, network management and reporting/ Despite some clear advantages, some operators have deemed the analytics. The efficient use of ENUM lies at the heart of any existing SS7 routing infrastructure “good enough” and find the multilateral peering value proposition. cost of TDM routing dips insufficiently prohibitive to motivate a move to a new model. However, this is not a static situation, as ENUM History and Definitions user demand and competition will force the hand of operators who have yet to commit to a hub-based peering approach. As the ENUM began when the IETF Telephone Number Mapping Working islands of IP grow and the number of endpoints that can consume Group set out to define a domain name system (DNS)-like IP services grows exponentially, several Tier 1 operators have architecture and protocol for mapping a traditional E.164 telephone publicly committed to a complete decommission of their PSTN number to an IP address via Uniform Resource Identifier (URI). This infrastructure during the next several years. Furthermore, there is process of association between telephone number and IP address decreasing support for existing TDM gateway equipment as these is very similar to the way in which URL addresses are resolved to products transition to end-of-life status. IP addresses through DNS infrastructure supplied via the Internet. While this appears to be a rather straightforward proposition, the

Exhibit 2: ENUM Definitions Source: Yankee Group, 2011

The original version of ENUM as a global, public directory, with subscriber opt-in Public ENUM capabilities and delegation and the country-code level in the e164.arpa domain. This is also referred to as User ENUM.

A carrier may use ENUM within its own networks, in the same way DNS is used Private ENUM internally to networks.

Groups of carriers or communications service providers agree to share subscriber information via ENUM in private peering relationships. This is the Carrier ENUM preferred ENUM model, as carriers themselves control subscriber information, not the individuals. Carrier ENUM is also referred to as Infrastructure ENUM and is being adopted today to support VoIP peering.

Multilateral Peering Federation Benefits Why Hub-Based Interconnect?

Multilateral IP peering federations offer a number of potential Yankee Group forecasts and survey data provide evidence of the benefits to their members, including: growth potential for IP services. For example, consider the most mature IP service, VoIP. An excellent microcosm of this trend is • Reduction of operational costs by enabling the most direct the rise of cable operators in the U.S. as providers of competitive routing possible, avoiding unnecessary costs from transit voice services. Yankee Group forecasts U.S. multi-service carriers and hops. operators (MSOs) will capture more than 30 million subscribers • Increased quality of voice calls and features through by 2014. In total, Yankee Group expects nearly 48 million VoIP minimizing all unnecessary transcoding and unnecessary hops subscribers in the U.S. by 2014, accounting for 27 percent of all from transit carriers. telephone lines (see Exhibit 3). This is hardly a U.S. phenomenon: Yankee Group forecasts that VoIP will represent 17 percent of all • Full end-to-end cross-network interconnect for new IP fixed telephone lines in use globally in 2014. multimedia services (e.g., HD voice, video, RCS). Hub-based interconnect can provide advantages for other fast- • Flexible commercial models, including traditional bilateral growing services, including enterprise IP services such as UC and settlement, cascade payment and hubbing, and the new multilateral videoconferencing, as well as OTT IP services, and it can have an and settlement-free (also known as “bill and keep”) models. impact on local number portability. • Creation, management and negotiation of interconnection agreements, ranging from very simple to extremely complex, among multiple operators.

Exhibit 3: US VoIP Penetration Source: Yankee Group, 2011

30% 60,000 27%

25% 25% 47,934 50,000 23% 44,220

20% 39,946 20% 40,000 17% 35,118

29,804 15% 14% 30,000 24,497

10% 20,000

5% 10,000

0% 0 2009 2010 2011 2012 2013 2014

Total U.S. VoIP Lines Percentage of U.S. Lines That Are VoIP

Enterprise Services: UC and Video Services adoption of advanced UC services planned over the next 24 months, including video and mobile VoIP, both of which benefit from hub- UC converges all forms of audio, video, Web, desktop and mobile based interconnection. communications on an IP network, resulting in the breaking down of all distance, time and media barriers. UC enables people to Consumer Services: Video Calling communicate with each other anywhere, any time, over any device. The recent industry buzz around video calling has been focused on Its promise is compelling in terms of productivity enhancements; the front-facing cameras and corresponding peer-to-peer (P2P) video however, the challenge in the UC market to date has been services now available on iconic smartphone devices such as Apple’s inefficient architectures that tend to follow traditional vertical silos iPhone 4. While these devices capture our imagination and certainly or inefficient use of IP connectivity, which limits network effects. raise the visibility of video calling, their success is confined to the semi- Similarly, enterprise-class videoconferencing solutions from closed Apple environment, and they cannot benefit from the network vendors such as Polycom and Cisco are also gaining interest effects possible in a truly open network with any-to-any connectivity. as improved quality, lower costs and the economic benefits of Today, nearly every PC, laptop or mobile device either has or will reduced travel resonate in a down economy—but they also require have native video capabilities. The combination of faster networks, a new architecture to ensure the greatest possible network effects. more capable devices and improved UIs have come together to Hub-based interconnect can provide part of the answer to the UC make video calling viable after years of failure. OTT video service and videoconferencing challenges by allowing interworking among providers such as Skype and Tango are now reaching a new different vendor implementations and underlying networks. generation of users who embrace the video calling experience. Results from Yankee Group’s Anywhere Enterprise: 2010 US Consumers are drawn to video calling based on a desire to travel Unified Communications (UC) FastView Survey show both less in an effort to be more productive and save the environment, the maturity of and opportunity for adoption of various UC enhance the value of their P2P communications by adding another components (see Exhibit 4). These results point to greater visual dimension and, perhaps most importantly, have fun with it.

Exhibit 4: UC Components Deployed, Piloted or Planned Source: Yankee Group’s Anywhere Enterprise: 2010 US Unified Communications (UC) FastView Survey, December 2010

Which of the following UC components have you deployed or do you plan to deploy?

Corporate IM 74% 13% 7%

Room-based video conferencing 74% 13% 12%

Web conferencing 69% 19% 8%

Desktop video conferencing 59% 21% 12%

Unified messaging 59% 17% 18%

In-house audio conferencing 59% 20% 15%

Desktop applications 58% 21% 12% Already deployed Pilot-testing Mobile phone integration 56% 22% 15% Plan to deploy in next 24 months n=443 Telecommuter solutions 50% 28% 13%

Location-based services 48% 19% 21%

VoIP apps on IP phone 46% 22% 18%

Soft phones 42% 19% 21%

Telepresence 40% 25% 18%

Speech recognition apps 33% 23% 23%

0% 20% 40% 60% 80% 100%

The key challenge to mass adoption of video calling is the lack To recapture some of the lost value, service providers have the of interoperability between different vendor or service provider opportunity to either work with or peer with Skype to offer on-net implementations of the service. Telepresence and videoconferencing completions among communities of subscribers, a situation that service providers such as Cisco, BT and AT&T have launched benefits both user communities. “video exchanges” to overcome these obstacles. Video exchanges Hub-based interconnect affords the opportunity for OTT service are physical places where users on one enterprise and/or carrier providers to peer with one another or with network-based providers telepresence and videoconferencing network service can connect of IP services. By increasing the network effects of their services, they securely and reliably with users on one or more other telepresence are able to increase their perceived value, resulting in faster growth and videoconferencing networks. However, this interworking is for both OTT and traditional network service providers. limited to the telepresence environment and specific systems, and it requires a physical network connection to the exchange. Importance of Local Number Portability Regulation Hub-based interconnect can provide the policy/routing support and on IP Peering signaling/media interworking between individual video calling service providers or video exchanges to overcome the remaining technical The regulatory trend requiring service providers to allow customers obstacles standing in the way of any-to-any video calling. to keep their phone numbers if they change service providers offers an additional incentive to adopt a hub-based peering solution. The OTT IP Services European Union already mandated local number portability (LNP); According to its latest financial results, Skype has rocketed past many countries including the U.S., Canada, France, India, Mexico, 550 million users and nearly U.S.$200 million in annual revenue Australia and Korea have already implemented LNP; and countries (see Exhibit 5). Skype is rapidly becoming a popular mobile service such as Nigeria, Russia, Peru and Qatar are presently evaluating due to the combination of smartphones and strategic alliances timelines for adoption. Taiwan, Saudi Arabia and Japan launched with traditional service providers such as Verizon Wireless and 3 LNP requirements in 2006; India introduced LNP by the end of U.K. The increasing popularity of services that ride over the top of 2010. Brazil, Singapore and Mexico all adopted LNP in 2008. With service provider networks has created a disintermediation effect the global move toward LNP comes the requirement for a global that separates network owner from application value creation. registry for number resolution. Global ENUM registries run by hub- based interconnection providers help solve this issue. Exhibit 5: Skype Users Top 500 Million Source: Yankee Group, 2011 Bilateral Direct IP Peering Is Applicable, but Not Scalable Skype Users by Year (in Millions) 600 Bilateral IP service peering follows a model similar to a standard 500 PSTN interconnection, where service providers create a separate 400 technical and commercial relationship with every other provider to which they peer. Bilateral peering works well in the PSTN—an 300 560 521 environment with established and stable technical standards, a 200 405 276 limited number of participants and simple rules for call routing. By 100 171 contrast, the emerging IP services environment is less suited to - 0 bilateral peering due to the continuing evolution of standards and 2006 2007 2008 2009 2010 services (see Exhibit 6 on the next page).

Exhibit 6: Multilateral Exchange Provides Flexibility Required for IP Services Source: Yankee Group, 2011 Bilateral Interconnection Multilateral (Federation) Interconnection

SP (Service Provider)

Federation/Interconnection Provider

Without a central call-routing registry, bilateral peering requires a • Security and identity daily exchange of data between each pair of peered carriers so that • Reporting and settlement each can maintain its own routing registry information. This process also introduces security and trust concerns, which limits scalability. • Media management (optional) Bilateral peering is viable for a number of significant direct peering relationships, but it will not facilitate more universal interconnection ENUM Registry Services between the many hundreds (and soon to be thousands) of At the heart of any peering proposition lies the ENUM directory. IP-enabled service providers globally. The key criteria involve its overall size, inter-connectedness to IV. What to Look for in a Hub-Based other ENUM registry services, flexibility in terms of privacy and Interconnection Partner data-sharing policy, and speed with which ENUM infrastructure is able to respond to ENUM queries. When choosing an IP interconnection partner or multiple partners, it helps to understand your overall goals from a service and Questions to ask: operations perspective and then match them to your partners’ • What is your total number of ENUM entries? capabilities. Yankee Group identifies six key service criteria and one optional area that IP service providers should bear in mind as they • Do you maintain a global or a regional directory? evaluate their multilateral peering options. These are: • How many other ENUM registries do you peer with? • ENUM registry services • What is your current charging model for directory dips? • Peering policy management • What is your approach to addressing potential privacy concerns • Signaling interoperability among peered operators?

• New services: Multimedia IP

Peering Policy Management Protocol and XMPP) and normalizing media issues, such as transcoding, codec management, bandwidth issues, frame size, A multilateral federation should provide the ability for member refresh rates, etc. service providers to decide how extensively they peer within the federation. Ideally, all members would peer without discrimination; For services like presence, both SIMPLE (a SIP derivative) and XMPP however, the reality is that members need to be in control of are often used. Even for HD voice, transcoding between different that decision (for instance, in the case of peering with a regional HD codecs, as well as G711.1, G.722, G722.2 (Adaptive Multi- competitor). Ideally a peering solution can include support for unique Rate Wideband (AMR-WB)) and SILK, etc., all require increased peering arrangements between different providers, based on criteria functionality and services to enable a call/session to flow end to end. such as geography and service type, or, for smaller federations, based Questions to ask: on similar communities of interest (e.g., all cable operators). • To what extent are you able to guarantee interoperability among Questions to ask: different video protocols, including proprietary? • What is your mechanism to control peering policy? • Which codecs are supported? • How much control do I have regarding access to my data? • How long will you support a given protocol or codec? • What is the service-level agreement (SLA) related to peering policy? Security and Identity Signaling Interoperability Any multilateral interconnection federation under consideration Every successful IP session requires interoperability among signaling must be able to make its members feel every step is taken to ensure protocols between service providers to initiate service sessions their security concerns are addressed at the infrastructure and with feature transparency. Protocols in use within the industry service levels. For example, a VoIP caller must be fully identified include SIP, SIP-I, BICC, H.323 and, for new providers, Extensible and authenticated to ensure caller ID is correct, anonymous calling Messaging and Presence Protocol (XMPP). Also, because providers is handled correctly and VoIP threats such as SPIT and caller ID use different software platforms to implement their service, spoofing are minimized. there are significant variations even within a given protocol that To prevent SPIT, the interconnection provider must analyze calling require intermediation to ensure interoperability. Hub-based behavior and proactively identify suspicious calling patterns, which interconnection service providers should handle the translation and include sequential dialing of numbers, numerous calls of similar duration normalization of signaling among member service providers. and call patterns that do not reflect normal consumer behavior. Questions to ask: Based on these attributes, a SPIT call can be identified and blocked or diverted to a “junk” voice mail box in a similar manner as junk e-mails. • To what extent can you guarantee interoperability among different SIP protocol variants? Questions to ask:

• What is your full range of multi-protocol support? • What steps have you taken to ensure that a member identity is protected? • What processes do you have to ensure that vendor-specific protocol implementations have support? • What is your security architecture?

• How long will you support a given protocol? • How do you identify and mitigate SPIT?

New Services: Multimedia IP • How do you identify and mitigate caller ID spoofing and voice- based Vishing attacks? The complexity of supporting end-to-end video introduces significantly more protocol interworking (including multi-protocol, • What is the process for maintaining the latest information H.264, H.263, SIP, H.323, ISDN, Cisco Telepresence Interoperability related to signaling attack signatures?

Reporting and Settlement Questions to ask:

The opportunity to eliminate PSTN’s per-minute charges raises • How is monthly reporting handled? What data are you collecting? the question of what settlement arrangement should take its place. • How do you support complex settlement challenges? Generally, there are five settlement models in use today: • What reporting tools do you make available to member • Bilateral settlement: Termination charges are agreed to service providers? bilaterally among service providers for either transport- or service-layer interconnection. • How do you charge for settlement and reporting services?

• Hub-based cascade (and clearinghouse) payment: Media Management (Optional) Termination charges are cascaded among service providers for transport- or service-layer interconnection. An interconnection service need not be tightly coupled with media management, and indeed many providers prefer that an • Hubbing: The hub charges for services as a contracting party, interconnection service not interfere with media when it can be with no transparency. avoided. However, for a variety of technical reasons relating to

• Bill and keep settlement: Reciprocal call termination charges security, QoS management, private/public IP or interoperability, are zero. That is, each network agrees to terminate calls from it will sometimes be necessary for an interconnection provider to the other network at no charge. handle the media.

• Multilateral: This model enables, across some of the different Where the interconnection provider does handle media, it is options above, a more scalable, reduced management cost important to discern whether it is for commercial reasons (its billing implementation for contracts and commercials for multiple model may be based on capacity or ports consumed and therefore interconnections. relate to call volumes) or for technical reasons, done only when required to facilitate the interconnection service. As video and high- While many service providers with balanced traffic will enter bandwidth codecs are adopted more widely by VoIP consumers, settlement-free (bill and keep) arrangements, situations exist in service providers may prefer an interconnection provider that only which both traditional and non-traditional settlement arrangements handles the media when absolutely necessary. will be necessary. These broader settlement models are especially relevant to a new wave of IP service providers that can benefit Questions to ask: from a wider range of settlement options based on their specific • In what instances will you handle the management of Real-Time commercial goals and interconnection relationships. For example, Transport Protocol (RTP)? cable companies (MSOs), Web 2.0 service providers and enterprise UC solution providers may choose to employ one or more • What media protocols and codecs can you support? commercial models depending on their peering policy. • How do you charge for media management services? An interconnection exchange provider should gather metrics to support per-call and per-minute settlement for voice, video, IM and other content and offer a flexible approach to settlement. Reporting capabilities should map well to the internal key performance indicators (KPIs) established by the member service provider.

V. IP Interconnection Exchange Supplier Spotlight: XConnect Landscape Overview XConnect is a neutral managed service provider offering One measure of the value placed on hub-based IP interconnection federation-based carrier ENUM registry and next-generation services is evident in the diversity of the competitive landscape. multimedia interconnection and peering services. XConnect builds Counting Tier 1 network operators, specialists and vendors, the its value proposition based on its ability to reduce the costs of market landscape for hub-based IP interconnection services has interconnection and termination, enhance service quality and spurred continued investment. Solutions span regional, global, signaling- support rich multimedia IP communications on a cross-network layer or media-layer connections, or all of the above. Today, this basis. XConnect operates one of the largest worldwide ENUM- landscape includes signaling and settlement interconnection-focused based IP interconnection federations, called the Global Alliance, and service providers such as BT, Tata, BICS, GSMA IPX operators, the world’s first national VoIP/NGN interconnection federations in Neutral Tandem, Syniverse and Arbinet. Service providers in this the Netherlands, South Korea and South Africa. category build their value proposition based on their ability to provide As the XConnect ENUM registry grows quarter by quarter, a range of interconnection and settlement services, their geographic participating service providers can complete an increasing focus and footprint, and commercial terms. ENUM registry operators percentage of outbound off-network calls as sessions to other such as Neustar, Telcordia and TNS and equipment vendors such as members of their federations, with the remainder routed to mobile Nominum and NetNumber differentiate on their ability to provide and fixed-line networks. XConnect IP Federation Architecture is advanced features around their ENUM registries. Several providers represented in Exhibit 7. such as XConnect provide a combination of services including ENUM registry, multimedia IP interconnection hub and value-added services.

ENUM Directory Management Subsystem Exhibit 7: XConnect Federation-Based External Interconnection Sources Service Provider Exchange Architecture Master Provisioning Provisioning Source: Yankee Group and XConnect, 2011 Registry Manager Web Web Server Browser Replication API (Provisioning) Server

Service Provider Session Management Subsystem Replication/Data Push Local Hosted Master Policy and Routing Directory Directory Security Engine Server Server Server

Number Query Number Query

Session Session Call Flow Session Session Session Border Border Control Border Border Element Element Element Element Element

Media Management Subsystem

Session Media Flow Session Session Media Media Media Element Element Element

Call Data Management Subsystem

Web Quality Reporting Rating Control Browser Server Server API (Reporting) Server

The XConnect service provides the benefits associated with VI. Hub-Based Interconnect Case Study: Telio managed services. Service providers do not deploy any new equipment; they only pay for the services they actually use. Company Overview and Positioning Headquartered in London with offices and points of presence in Telio is a European provider of access-independent communications the U.S., Europe and Asia, XConnect provides services to over 100 services. The Telio Group is headquartered in Oslo, Norway, and has communications service providers in more than 20 countries. operations in Norway, Denmark, the Netherlands and Switzerland. A useful exercise is to contrast XConnect hub-based interconnection Telio is one of the largest providers of broadband communications services with an interconnection offering from a company like services in Norway, measured in traffic. Founded in 2003, it was the first Sprint. Sprint offers an interconnection solution called the Partner company to offer VoIP in Norway when it launched the service in 2004. Interexchange Network (PIN), which also aims to bring together Telio’s value proposition is to provide a continuously improving VoIP networks but is only focused on the exchange of voice services end-user experience by offering innovative and user-friendly and does not include ENUM directory services. Exhibit 8 provides a telecommunications services based on flat-fee pricing. A comprehensive market overview comparing different operators and combination of Telio offerings can replace traditional fixed vendors of ENUM directory services, interconnection hub services telephone services by using the Telio VoIP solution over a fixed or and additional value-added interconnection services. mobile broadband connection.

Exhibit 8: Hub-Based IP Interconnection Landscape Source: Yankee Group, 2011 Competitor Analysis/Market Overview

ENUM DIRECTORY SERVICES INTERCONNECTION ADDED SERVICES HUB

(O)perator/(V)endor Markets Registry ENUM Registry Services Inter-Registry Interoperability Interconnection Voice Multimedia IP (HD, video, etc.) PathFinder-Compliant GSMA Flexible Settlement and Services Clearing Financial Exchange/IPX Private and Origination Services Termination Federations Enterprise

XConnect O Global 4 4 4 4 4 4 4 4 4 4

Telcordia O Global 4 4 0 0 0 0 0 0 0 0

Syniverse O Global 4 6 6 6 0 0 0 0 0 0

Neustar O Global 4 4 0 0 0 4 0 0 0 0

IntelePeer O US 4 0 0 4 6 0 6 0 0 6

Arbinet O EU/US/HK 4 4 4 4 0 0 6 4 4 0

TNS O Global 4 4 0 6 0 0 6 0 0 0

BT - IP Exchange O UK 4 0 0 4 6 0 0 6 4 0

Neutral Tandem O US 0 0 0 4 0 0 6 0 4 0

Sprint - PIN O US 4 0 0 4 0 0 0 0 4 0

NetNumber V/O Global 4 4 4 0 0 4 0 0 0 0

Telio’s mission is to be a major force in defining and providing fixed, As XConnect developed its hub-based federation model, it aligned video and mobile Internet communications to the consumer and with Telio’s views on how the telecom world should evolve while small businesses. offering a distinct cost savings due to its multilateral basis. In particular, Telio takes advantage of the following XConnect hub- Business Challenge based interconnection services:

The business challenges that drove Telio to consider a hub-based • National peering for domestic interconnect IP interconnect involved operational cost control, management efficiency and differentiated service strategy. As it does in several • International peering via the XConnect Global Alliance countries, IP-to-IP communications in Norway falls outside the • Settlement-free peering via the Free Alliance regulatory framework covering traditional telecommunications services (e-com services). • High-definition voice interconnection via the HD Alliance

The dependency on incumbent operators for regulated interconnect The original interconnect between Telio and XConnect was can be a major challenge in maintaining service profits for VoIP completed in 2007 and went live approximately 20 days from the operators. Managing the costs associated with both national and start of interoperability testing. Telio recently expanded its scope international interconnect required a solution that was both cost- with XConnect to include its European subsidiaries, which took effective and flexible enough to remove the administrative burden of about 10 days to add. maintaining several bilateral peering arrangements. Why XConnect? On the service side, Telio required a solution that allowed for the cost-effective delivery of innovative IP services, such as HD voice Ultimately, XConnect was chosen due to the diverse range of calling, presence and video services, as well as pure IP delivery federation options it could provide to Telio to reduce costs among the greatest amount of networks and subscribers. and increase service reach, quality and profitability. A major consideration was the fact that XConnect had multiple, live Solution operating federation services in commercial use and allowed for both national and international peering in a neutral manner. Telio To meets its business challenges, Telio decided to initially outsource gives XConnect high marks for its overall scalability, since it offers IP interconnect to XConnect in a pay-as-you-grow model, thereby the ability to easily peer with new service providers as they join. reducing the dependency for interconnections based on more capital-intensive TDM/IP gateway models of the past. Technically, support for advanced interworking across multiple protocols (SIP, H.323 and XMPP) allowed for the greatest possible The hub-based interconnect service allowed Telio to interconnect service reach and security features to protect Telio’s assets once and gain access to many networks it wouldn’t have been within the federated environment. Additional consideration was able to access using the bilateral peering models of the past. The given based on the level of peering control and policy XConnect cost and complexity to re-create that reach through a bilateral could provide; Telio could choose a high degree of interconnect model would be onerous at setup and beyond, on both a technical configurability and control. Telio also gave consideration to level (ENUM registry, interworking, security) and a commercial/ business model flexibility, which removed many shortcomings of the contractual level. traditional interconnection model.

Benefits Future Plans

Telio experienced the following benefits through its partnership In the future, Telio expects XConnect to remain a vital part of with XConnect: its operations—in particular, in support of new services-based federations in RCS, IM, video, presence and mobile VoIP. Telio • Reduced opex and capex due to a single connection to the expects its partnership with XConnect guarantees that future interconnection hub deployments and services will work seamlessly, and it anticipates • Increased ARPU and APPU through longer calls, lower customer that XConnect will be a key partner in the delivery of video management cost, better customer experience, and faster and services. Video interconnection is a new service segment with better bundling of services at higher fees many more variables attached to it (handsets, screens, codecs), and that will demand a comprehensive review of the traditional • Reduced churn through more compelling and sticky customer interconnection model. Solutions in this area are still matriculating experience and faster and better bundling of services, both and represent an opportunity for both Telio and XConnect. within and outside of Telio’s network VII. Conclusions • Availability of accurate call routing and addressing information through a global ENUM registry The rich nature of IP services has caused an explosion of market demand. Traditional network service providers, Internet-based • Assurance that calls are routed as IP all the way between service providers and enterprise vendors alike are carefully networks to preserve call quality and exploit the revenue evaluating strategies to aggressively compete for new customers potential of new multimedia services and defend against subscriber churn. Against the backdrop of • Easier creation and management of multiple interconnect the current economic environment, service provider investment agreements, which involve complex work items such as will either save costs or increase revenue. Multilateral hub-based interoperability testing, peering policy management and policy peering/interconnect for IP services provides an opportunity to enforcement; XConnect’s interconnection hub allows Telio to accomplish both. interconnect with more than 150 services providers using just Choosing a multilateral interconnection partner is becoming a one agreement strategic imperative for service providers that wish to increase • Negotiation of commercial agreements and settlement rates the network effects of their IP services while controlling costs. It between interconnected networks is important to understand the differences among interconnection service providers regarding ENUM registries, peering connections • Ensured network security across multiple interconnection partners and their services in support of peering policy, security and • Access to additional federated communities of interest such as management. Arming oneself with the right set of questions will members of GSMA’s PathFinder service, other IPXs or other lead to a successful choice. federated UC communities

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Brian Partridge, Vice President

Brian Partridge is vice president of Yankee Group’s Anywhere Network research group with expertise in carrier network infrastructure and service delivery solutions. He focuses on the challenges that network operators face as multimedia services migrate to packet-based networks. Specifically, he examines market drivers, vendor/operator strategies and new business models driving investment in next-generation service delivery architectures, including NGN, IMS and SDP. rs rte ua dq ea H

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