Tuesday, June 27, 2006

2007 Will Be the Year of VoIP Peering

What the courts give us the FCC taketh away. Last year 11th U.S. Circuit Court of Appeals ruled that the 3% excise tax charged on long-distance calling to fund the Spanish-American War in 1898 was illegal. Finally last month the government finally gave up challenging the obsolete tax, but not before it had a new scheme up their sleeve. Last week the FCC announced that VoIP providers would have to start contributing to the Universal Service Fund (USF) and that wireless providers would have to contribute even more. The few cent break that customers thought that they would receive is actually turning into a tax increase. The catch to the tax is that it will only be charged on VoIP calls that terminate on the PSTN. All wireless calls will be subject to the tax increase.

This new tax is just the motivation that VoIP providers, especially broadband VoIP carriers, need to focus on keeping their calls totally IP. I had always been disappointed that Vonage, SunRocket, Packet8, and the other broadband VoIP providers never banded together to form peering relationships. For those of you unfamiliar with the concept of peering, just like the Internet peering is where carriers of equal size agree to interconnect their networks to share traffic. Smaller service providers purchase capacity from larger VoIP transit providers that peer with carriers of equal size. The alternative is to interconnect with one of a handful of peering providers. I can see why the large VoIP transit providers never started peering because they make money from PSTN terminations. This new FCC ruling will be the catalyst necessary to push peering to the forefront of VoIP provider priorities. PSTN terminations are expensive anyway, and they add extra coding and decoding processes that introduce distortion into the signal. Delaying peering may drive customers to other VoIP carriers that can keep the cost low because most VoIP customers switched from traditional POTS to save money. This group is very conscious about any increases to their monthly phone bill.

Broadband VoIP providers are already concerned about their future as the cable companies and RBOC offer competitive VoIP services. The cable companies are already taking a serious look at VoIP peering to reduce the cost of carrying calls inside and outside their networks. They see the potential cost savings and quality benefits. RBOC will drag their feet on peering because they have Metcalf’s Law on their side. Broadband VoIP providers have the biggest motivation to implement peering to keep their customers’ phone bills small and costs low; thereby, reducing churn. Companies such as NeuStar, VeriSign, Xconnect, and InfiniRoute Networks will benefit selling peering and ENUM solutions to large and small VoIP providers. While last year was the year of SIP, look for 2007 to be the year of VoIP peering. It continues to amaze me at why many businesses wait for a government action to motivate them to a competitive response.

Tag: VoIP Peering, NeuStar, VeriSign, Xconnect, InfiniRoute