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 its 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 servicesincluding 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 offerthe 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 networkthe PSTN. Fast-forward to 2010 and its a bit of dj 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.

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

Next-Generation Exchange-Based IP Interconnection

NOTE ON TERMINOLOGY
The terms exchange, IPX, federation and hub are often used interchangeably to describe a hub-and-spoke-based approach to facilitate scalable and efficient interconnection between multiple communications entities (e.g., operators, enterprises). This approach involves a central entity (e.g., hub, exchange, federation provider), thereby reducing the technical and commercial overhead and costs of multiple direct bilateral/ peering arrangements. We have predominately used the word exchange in this report. The services offered by the exchange can vary enormously, as outlined in this document.

Limited reach: Advanced services are limited in their ability to drive network effects because they cannot rely on the traditional PSTN for interconnection among service providers. Without an interconnection among different networks, revenue and margin opportunities will be limited to their home subscriber footprint. Revenue potential: These services will become an increasingly large portion of telecom operator revenue as legacy services such as POTS and SMS give way to services such as voice over broadband (VoBB) and Rich Communication Suite (RCS). Network operators that have made money selling TDM-based

II. IP Services Will Dominate the New Services Landscape

It is not news that circuit-switched networks designed for highquality voice are giving way to the next generation of networks built on IP. Network traffic patterns will shift from predominantly TDM to all-IP over the next several years, providing opportunities for service providers that provide hub-based interconnect capabilities. This is true for both the fixed and wireless access markets, where much of todays traffic is TDM but where mobile broadband adoption, mobile soft switching, IMS services and over-the-top (OTT) services are gaining momentum. It also holds true in enterprise markets, where UC and videoconferencing vendors are actively working with peering federation providers to bridge their communities of users.

voice services are at the beginning stages of a multi-year transition to the all-IP networks of the future. As networks evolve to IP, so do the services. These new services cannot rely on the PSTN for interconnection, creating a strategic need for multi-layered IP federation services.

III. Multilateral Exchange-Based Interconnect: A Technology Review

To replicate the success of TDM services in an IP world, service providers and enterprises must consider how they will interconnect their islands of IP through bilateral, multilateral or hub-based interconnection arrangements. While the earliest attempts at IP peering were focused squarely on connecting disparate islands of VoIP, NGN and IMS the next wave of solutions must expand their purview to include a much fuller list of short- and long-tail services. An important difference between VoIP peering and advanced all-IP service interconnection is that VoIP services could pass from IP to 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 remain on IP to maintain service continuity between different access networks and endpoints. We are entering a period of time in which next-generation hub-based IP interconnection models will become a critical success factor and TDM interconnections will become a dead end. Next-generation hub-based IP interconnect exchanges should not be confused with Internet peering or Internet eXchange (IX) peering points where Internet networks are interconnected. An IP IX only provides standard IP/Ethernet Layer 1/2/3 network layer interconnects where IP packets are exchanged. An interconnect exchange will provide additional services beyond the network layer, such as service-aware protocol interworking and interoperability, ENUM registry, security, identity and commercial/clearinghouse functions.

New IP Services Call for New Interworking Arrangements

The proliferation of broadband access networks has fueled adoption of advanced services such as instant messaging (IM), HD voice, social media, HD and LD video calling and conferencing, and OTT IP communications services such as Vonage, Google Talk and Skype. These services represent the next generation of revenue drivers for service providers as the PSTN is retired, and fixed and mobile broadband IP networks become ubiquitous. These new services are all characterized by the following attributes: Appeal: The services are highly appealing to enterprises and consumers based on their prolific use of IP, enabling rich realtime voice, video and messaging capabilities and support for mobile payments, Web 2.0 mash-up services and services that include telecom operator APIs such as location and presence.

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

March 2011

The benefits of IP services come with new security risks such as toll fraud, identity theft, spam over IP telephony (SPIT) and denial-ofservice (DoS) attacks. Traditional network security measures like firewalls and intrusion prevention systems (IPSs) mitigate some of those risks, but they are not designed to handle complex signaling/media sessions using protocols such as SIP. IP-to-IP interconnect requires some interworking in cases where different SIP signaling variants or the legacy H.323 protocol are used by IP network elements. Soon, consumers and enterprises alike will require critical services delivered over IP. The inevitable adoption of IP services is good for service providers, who will reap economic value from the services popularity. The realities of an iterative transition of this magnitude are complex. Hub-based IP interconnect can help reduce many of the complexities by providing a ready-made environment to maximize service reach and interconnection costs. By combining interoperability services with ENUM, interconnection delivers the features, quality and cost benefits of IP and eliminates use of the PSTN as the medium through which calls are delivered between operators. Service providers face a number of critical investment decisions about how best to manage the transition to IP in order to maximize profitability of existing services, minimize operational complexity 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.

A hub-based provider of ENUM registries and multi-protocol, multi-vendor VoIP/NGN interconnection infrastructure can enable communications service providers to join multilateral interconnection relationships with IP service providers, either at the regional level or around the globe.

How Multilateral Hub-Based Interconnect Works

Multilateral hub-based federations operated by neutral third parties, infrastructure vendors or wholesale service providers enable service providers to more intelligently route sessions in the most cost-effective manner and increase the reach of services for their member subscribers. Their role is to provide a central point of interconnection among like-minded operators at the signaling layer, media layer or both. At the heart of todays hub-based peering solutions are ENUM registries, SIP signaling hubs and media layer interconnection hubs (internetwork packet exchange, or IPX, networks) among different service providers. For example, Exhibit 1 shows the GSMAs IPX Service architecture, where PathFinder is the global carrier ENUM registry and media is connected via private IPX networks or via the Internet.

Exhibit 1: GSMA IPX Service

Source: Yankee Group, 2011

Trusted Environment

PathFinder

ISP FNO MNO

Local ENUM MMS IM IPX1

IPX2 IPX3

ISP FNO MNO

IM Local ENUM MMS

Private IPX Domain

Voice VS

Internet

Voice VS

Mobile Subscribers

Mobile Subscribers

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

Next-Generation Exchange-Based IP Interconnection

To clarify, IPX is not responsible for offering end-user services; it provides the interconnect between service providers that offer end-user services. IPX supports various functions so a customer of Service Provider A can set up and complete a session with a customer of Service Provider B. IP services transported over IPX must be standardized and documented in a service specification to ensure interoperability. IPX generally consist of two layers: The transport layer provides connectivity between two service providers. This layer provides a guaranteed QoS bit-pipe function. The service layer provides establishment of connections and management of billing and settlements for a service. Around these core assets, multilateral peering providers compete based on the flexibility of their offerings, in particular as it relates to security, settlement models, network management and reporting/ analytics. The efficient use of ENUM lies at the heart of any multilateral peering value proposition.

term ENUM often leads to confusion, given all the different types of ENUM in the marketplace and how they relate to intra-carrier peering architectures (see Exhibit 2). Proponents of ENUM have espoused the benefits of operational cost savings and service quality made possible by avoiding traditional PSTN routing infrastructure (i.e., SS7) to complete VoIP calls destined for a non-local VoIP endpoint. For some, this has been 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 that are actually destined for an IP endpoint are sufficiently small estimates range from 15 percent to less than 5 percent of overall call volume, depending on the operator. From a wholesale interconnect perspective, though, the benefits gained from direct or hub-based IP interconnect (e.g., cost, quality) are applicable for voice even if the endpoint is not IP, provided the interconnect is IP-enabled. Despite some clear advantages, some operators have deemed the existing SS7 routing infrastructure good enough and find the cost of TDM routing dips insufficiently prohibitive to motivate a move to a new model. However, this is not a static situation, as user demand and competition will force the hand of operators who have yet to commit to a hub-based peering approach. As the islands of IP grow and the number of endpoints that can consume IP services grows exponentially, several Tier 1 operators have publicly committed to a complete decommission of their PSTN infrastructure during the next several years. Furthermore, there is decreasing support for existing TDM gateway equipment as these products transition to end-of-life status.

ENUM History and Definitions

ENUM began when the IETF Telephone Number Mapping Working Group set out to define a domain name system (DNS)-like architecture and protocol for mapping a traditional E.164 telephone number to an IP address via Uniform Resource Identifier (URI). This process of association between telephone number and IP address is very similar to the way in which URL addresses are resolved to 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

Public ENUM

The original version of ENUM as a global, public directory, with subscriber opt-in 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 internally to networks. Groups of carriers or communications service providers agree to share subscriber information via ENUM in private peering relationships. This is the 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.

Private ENUM

Carrier ENUM

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

March 2011

Multilateral Peering Federation Benefits

Multilateral IP peering federations offer a number of potential benefits to their members, including: Reduction of operational costs by enabling the most direct routing possible, avoiding unnecessary costs from transit carriers and hops. Increased quality of voice calls and features through minimizing all unnecessary transcoding and unnecessary hops from transit carriers. Full end-to-end cross-network interconnect for new IP multimedia services (e.g., HD voice, video, RCS). Flexible commercial models, including traditional bilateral settlement, cascade payment and hubbing, and the new multilateral and settlement-free (also known as bill and keep) models. Creation, management and negotiation of interconnection agreements, ranging from very simple to extremely complex, among multiple operators.

Why Hub-Based Interconnect?

Yankee Group forecasts and survey data provide evidence of the growth potential for IP services. For example, consider the most mature IP service, VoIP. An excellent microcosm of this trend is the rise of cable operators in the U.S. as providers of competitive voice services. Yankee Group forecasts U.S. multi-service operators (MSOs) will capture more than 30 million subscribers by 2014. In total, Yankee Group expects nearly 48 million VoIP subscribers in the U.S. by 2014, accounting for 27 percent of all telephone lines (see Exhibit 3). This is hardly a U.S. phenomenon: Yankee Group forecasts that VoIP will represent 17 percent of all fixed telephone lines in use globally in 2014. Hub-based interconnect can provide advantages for other fastgrowing services, including enterprise IP services such as UC and videoconferencing, as well as OTT IP services, and it can have an impact on local number portability.

Exhibit 3: US VoIP Penetration

Source: Yankee Group, 2011

30%
27% 25%

60,000

25%
20%

23% 39,946

47,934 44,220

50,000

20%
17% 35,118

40,000

15%

14% 24,497

29,804

30,000

10%

20,000

5%

10,000

0% 2009 2010 2011 2012 2013 2014

Total U.S. VoIP Lines

Percentage of U.S. Lines That Are VoIP

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

Next-Generation Exchange-Based IP Interconnection

Enterprise Services: UC and Video Services

UC converges all forms of audio, video, Web, desktop and mobile communications on an IP network, resulting in the breaking down of all distance, time and media barriers. UC enables people to communicate with each other anywhere, any time, over any device. Its promise is compelling in terms of productivity enhancements; however, the challenge in the UC market to date has been inefficient architectures that tend to follow traditional vertical silos or inefficient use of IP connectivity, which limits network effects. Similarly, enterprise-class videoconferencing solutions from vendors such as Polycom and Cisco are also gaining interest as improved quality, lower costs and the economic benefits of reduced travel resonate in a down economybut they also require a new architecture to ensure the greatest possible network effects. Hub-based interconnect can provide part of the answer to the UC and videoconferencing challenges by allowing interworking among different vendor implementations and underlying networks. Results from Yankee Groups Anywhere Enterprise: 2010 US Unified Communications (UC) FastView Survey show both the maturity of and opportunity for adoption of various UC components (see Exhibit 4). These results point to greater Exhibit 4: UC Components Deployed, Piloted or Planned

adoption of advanced UC services planned over the next 24 months, including video and mobile VoIP, both of which benefit from hubbased interconnection.

Consumer Services: Video Calling

The recent industry buzz around video calling has been focused on the front-facing cameras and corresponding peer-to-peer (P2P) video services now available on iconic smartphone devices such as Apples iPhone 4. While these devices capture our imagination and certainly raise the visibility of video calling, their success is confined to the semiclosed Apple environment, and they cannot benefit from the network effects possible in a truly open network with any-to-any connectivity. Today, nearly every PC, laptop or mobile device either has or will have native video capabilities. The combination of faster networks, more capable devices and improved UIs have come together to make video calling viable after years of failure. OTT video service providers such as Skype and Tango are now reaching a new generation of users who embrace the video calling experience. Consumers are drawn to video calling based on a desire to travel less in an effort to be more productive and save the environment, enhance the value of their P2P communications by adding another visual dimension and, perhaps most importantly, have fun with it.

Source: Yankee Groups 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 Room-based video conferencing Web conferencing Desktop video conferencing Unified messaging In-house audio conferencing Desktop applications Mobile phone integration Telecommuter solutions Location-based services VoIP apps on IP phone Soft phones Telepresence Speech recognition apps
74% 74% 69% 59% 59% 59% 58% 56% 50% 48% 46% 42% 40% 33% 23% 21% 17% 20% 21% 22% 28% 19% 22% 19% 25% 21% 18% 21% 18% 23% 13% 7% 13% 19% 12% 18% 15% 12% 15% 13% Already deployed Pilot-testing Plan to deploy in next 24 months 12% 8%

n=443

0%

20%

40%

60%

80%

100%

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

March 2011

The key challenge to mass adoption of video calling is the lack of interoperability between different vendor or service provider implementations of the service. Telepresence and videoconferencing service providers such as Cisco, BT and AT&T have launched video exchanges to overcome these obstacles. Video exchanges are physical places where users on one enterprise and/or carrier telepresence and videoconferencing network service can connect securely and reliably with users on one or more other telepresence and videoconferencing networks. However, this interworking is limited to the telepresence environment and specific systems, and it requires a physical network connection to the exchange. Hub-based interconnect can provide the policy/routing support and signaling/media interworking between individual video calling service providers or video exchanges to overcome the remaining technical obstacles standing in the way of any-to-any video calling.

To recapture some of the lost value, service providers have the opportunity to either work with or peer with Skype to offer on-net completions among communities of subscribers, a situation that benefits both user communities. Hub-based interconnect affords the opportunity for OTT service providers to peer with one another or with network-based providers of IP services. By increasing the network effects of their services, they are able to increase their perceived value, resulting in faster growth for both OTT and traditional network service providers.

Importance of Local Number Portability Regulation on IP Peering

The regulatory trend requiring service providers to allow customers to keep their phone numbers if they change service providers offers an additional incentive to adopt a hub-based peering solution. The European Union already mandated local number portability (LNP); many countries including the U.S., Canada, France, India, Mexico, Australia and Korea have already implemented LNP; and countries such as Nigeria, Russia, Peru and Qatar are presently evaluating timelines for adoption. Taiwan, Saudi Arabia and Japan launched LNP requirements in 2006; India introduced LNP by the end of 2010. Brazil, Singapore and Mexico all adopted LNP in 2008. With the global move toward LNP comes the requirement for a global registry for number resolution. Global ENUM registries run by hubbased interconnection providers help solve this issue.

OTT IP Services
According to its latest financial results, Skype has rocketed past 550 million users and nearly U.S.$200 million in annual revenue (see Exhibit 5). Skype is rapidly becoming a popular mobile service due to the combination of smartphones and strategic alliances with traditional service providers such as Verizon Wireless and 3 U.K. The increasing popularity of services that ride over the top of service provider networks has created a disintermediation effect that separates network owner from application value creation. Exhibit 5: Skype Users Top 500 Million
Source: Yankee Group, 2011

600 500 400 300 200 100 - 0 2006

Skype Users by Year (in Millions)

Bilateral Direct IP Peering Is Applicable, but Not Scalable

Bilateral IP service peering follows a model similar to a standard PSTN interconnection, where service providers create a separate technical and commercial relationship with every other provider to which they peer. Bilateral peering works well in the PSTNan environment with established and stable technical standards, a limited number of participants and simple rules for call routing. By contrast, the emerging IP services environment is less suited to bilateral peering due to the continuing evolution of standards and

521 405 276 171

560

2007

2008

2009

2010

services (see Exhibit 6 on the next page).

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Next-Generation Exchange-Based IP Interconnection

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 daily exchange of data between each pair of peered carriers so that each can maintain its own routing registry information. This process also introduces security and trust concerns, which limits scalability. Bilateral peering is viable for a number of significant direct peering relationships, but it will not facilitate more universal interconnection between the many hundreds (and soon to be thousands) of IP-enabled service providers globally.

Security and identity Reporting and settlement Media management (optional)

ENUM Registry Services

At the heart of any peering proposition lies the ENUM directory. The key criteria involve its overall size, inter-connectedness to other ENUM registry services, flexibility in terms of privacy and data-sharing policy, and speed with which ENUM infrastructure is able to respond to ENUM queries. Questions to ask: What is your total number of ENUM entries? Do you maintain a global or a regional directory? How many other ENUM registries do you peer with? What is your current charging model for directory dips? What is your approach to addressing potential privacy concerns among peered operators?

IV. What to Look for in a Hub-Based Interconnection Partner

When choosing an IP interconnection partner or multiple partners, it helps to understand your overall goals from a service and operations perspective and then match them to your partners capabilities. Yankee Group identifies six key service criteria and one optional area that IP service providers should bear in mind as they evaluate their multilateral peering options. These are: ENUM registry services Peering policy management Signaling interoperability New services: Multimedia IP

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

March 2011

Peering Policy Management

A multilateral federation should provide the ability for member service providers to decide how extensively they peer within the federation. Ideally, all members would peer without discrimination; however, the reality is that members need to be in control of that decision (for instance, in the case of peering with a regional competitor). Ideally a peering solution can include support for unique peering arrangements between different providers, based on criteria such as geography and service type, or, for smaller federations, based on similar communities of interest (e.g., all cable operators). Questions to ask: What is your mechanism to control peering policy? How much control do I have regarding access to my data? What is the service-level agreement (SLA) related to peering policy?

Protocol and XMPP) and normalizing media issues, such as transcoding, codec management, bandwidth issues, frame size, refresh rates, etc. For services like presence, both SIMPLE (a SIP derivative) and XMPP are often used. Even for HD voice, transcoding between different HD codecs, as well as G711.1, G.722, G722.2 (Adaptive MultiRate Wideband (AMR-WB)) and SILK, etc., all require increased functionality and services to enable a call/session to flow end to end. Questions to ask: To what extent are you able to guarantee interoperability among different video protocols, including proprietary? Which codecs are supported? How long will you support a given protocol or codec?

Security and Identity

Any multilateral interconnection federation under consideration must be able to make its members feel every step is taken to ensure their security concerns are addressed at the infrastructure and service levels. For example, a VoIP caller must be fully identified and authenticated to ensure caller ID is correct, anonymous calling is handled correctly and VoIP threats such as SPIT and caller ID spoofing are minimized. To prevent SPIT, the interconnection provider must analyze calling behavior and proactively identify suspicious calling patterns, which include sequential dialing of numbers, numerous calls of similar duration and call patterns that do not reflect normal consumer behavior. 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. Questions to ask: What steps have you taken to ensure that a member identity is protected? What is your security architecture? How do you identify and mitigate SPIT? How do you identify and mitigate caller ID spoofing and voicebased Vishing attacks? What is the process for maintaining the latest information related to signaling attack signatures?

Signaling Interoperability
Every successful IP session requires interoperability among signaling protocols between service providers to initiate service sessions with feature transparency. Protocols in use within the industry include SIP, SIP-I, BICC, H.323 and, for new providers, Extensible Messaging and Presence Protocol (XMPP). Also, because providers use different software platforms to implement their service, there are significant variations even within a given protocol that require intermediation to ensure interoperability. Hub-based interconnection service providers should handle the translation and normalization of signaling among member service providers. Questions to ask: To what extent can you guarantee interoperability among different SIP protocol variants? What is your full range of multi-protocol support? What processes do you have to ensure that vendor-specific protocol implementations have support? How long will you support a given protocol?

New Services: Multimedia IP

The complexity of supporting end-to-end video introduces significantly more protocol interworking (including multi-protocol, H.264, H.263, SIP, H.323, ISDN, Cisco Telepresence Interoperability

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Next-Generation Exchange-Based IP Interconnection

Reporting and Settlement

The opportunity to eliminate PSTNs per-minute charges raises the question of what settlement arrangement should take its place. Generally, there are five settlement models in use today: Bilateral settlement: Termination charges are agreed to bilaterally among service providers for either transport- or service-layer interconnection. Hub-based cascade (and clearinghouse) payment: Termination charges are cascaded among service providers for transport- or service-layer interconnection. Hubbing: The hub charges for services as a contracting party, with no transparency. Bill and keep settlement: Reciprocal call termination charges are zero. That is, each network agrees to terminate calls from the other network at no charge. Multilateral: This model enables, across some of the different options above, a more scalable, reduced management cost implementation for contracts and commercials for multiple interconnections. While many service providers with balanced traffic will enter settlement-free (bill and keep) arrangements, situations exist in which both traditional and non-traditional settlement arrangements will be necessary. These broader settlement models are especially relevant to a new wave of IP service providers that can benefit from a wider range of settlement options based on their specific commercial goals and interconnection relationships. For example, cable companies (MSOs), Web 2.0 service providers and enterprise UC solution providers may choose to employ one or more commercial models depending on their peering policy. 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.

Questions to ask: How is monthly reporting handled? What data are you collecting? How do you support complex settlement challenges? What reporting tools do you make available to member service providers? How do you charge for settlement and reporting services?

Media Management (Optional)

An interconnection service need not be tightly coupled with media management, and indeed many providers prefer that an interconnection service not interfere with media when it can be avoided. However, for a variety of technical reasons relating to security, QoS management, private/public IP or interoperability, it will sometimes be necessary for an interconnection provider to handle the media. Where the interconnection provider does handle media, it is important to discern whether it is for commercial reasons (its billing model may be based on capacity or ports consumed and therefore relate to call volumes) or for technical reasons, done only when required to facilitate the interconnection service. As video and highbandwidth codecs are adopted more widely by VoIP consumers, service providers may prefer an interconnection provider that only handles the media when absolutely necessary. Questions to ask: In what instances will you handle the management of Real-Time Transport Protocol (RTP)? What media protocols and codecs can you support? How do you charge for media management services?

10

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March 2011

V. IP Interconnection Exchange Landscape Overview

One measure of the value placed on hub-based IP interconnection services is evident in the diversity of the competitive landscape. Counting Tier 1 network operators, specialists and vendors, the market landscape for hub-based IP interconnection services has spurred continued investment. Solutions span regional, global, signalinglayer or media-layer connections, or all of the above. Today, this landscape includes signaling and settlement interconnection-focused service providers such as BT, Tata, BICS, GSMA IPX operators, Neutral Tandem, Syniverse and Arbinet. Service providers in this category build their value proposition based on their ability to provide a range of interconnection and settlement services, their geographic focus and footprint, and commercial terms. ENUM registry operators such as Neustar, Telcordia and TNS and equipment vendors such as Nominum and NetNumber differentiate on their ability to provide advanced features around their ENUM registries. Several providers such as XConnect provide a combination of services including ENUM registry, multimedia IP interconnection hub and value-added services. Exhibit 7: XConnect Federation-Based Interconnection Exchange Architecture
Source: Yankee Group and XConnect, 2011

Supplier Spotlight: XConnect

XConnect is a neutral managed service provider offering federation-based carrier ENUM registry and next-generation multimedia interconnection and peering services. XConnect builds its value proposition based on its ability to reduce the costs of interconnection and termination, enhance service quality and support rich multimedia IP communications on a cross-network basis. XConnect operates one of the largest worldwide ENUMbased IP interconnection federations, called the Global Alliance, and the worlds first national VoIP/NGN interconnection federations in the Netherlands, South Korea and South Africa. As the XConnect ENUM registry grows quarter by quarter, participating service providers can complete an increasing percentage of outbound off-network calls as sessions to other members of their federations, with the remainder routed to mobile and fixed-line networks. XConnect IP Federation Architecture is represented in Exhibit 7.

ENUM Directory Management Subsystem

External Sources Provisioning Manager Web Server

Master Registry

Provisioning

Service Provider
Web Browser

Service Provider
Local Routing Engine

pl Re

ica

ti

ta /Da on

sh Pu

Replication Server

API

(Provisioning)

Session Management Subsystem

Master Directory Server Policy and Security Server

Hosted Directory Server

Number Query
Session Border Element Session Border Element

Number Query Call Flow

Session Control Element Session Border Element Session Border Element

Media Management Subsystem

Session Media Element

Media Flow

Session Media Element

Session Media Element

Call Data Management Subsystem

Web Browser Reporting Server Rating Server

(Reporting)

API

Quality Control Server

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

11

Next-Generation Exchange-Based IP Interconnection

The XConnect service provides the benefits associated with managed services. Service providers do not deploy any new equipment; they only pay for the services they actually use. Headquartered in London with offices and points of presence in the U.S., Europe and Asia, XConnect provides services to over 100 communications service providers in more than 20 countries. A useful exercise is to contrast XConnect hub-based interconnection services with an interconnection offering from a company like Sprint. Sprint offers an interconnection solution called the Partner Interexchange Network (PIN), which also aims to bring together VoIP networks but is only focused on the exchange of voice services and does not include ENUM directory services. Exhibit 8 provides a comprehensive market overview comparing different operators and vendors of ENUM directory services, interconnection hub services and additional value-added interconnection services.

VI. Hub-Based Interconnect Case Study: Telio

Company Overview and Positioning
Telio is a European provider of access-independent communications services. The Telio Group is headquartered in Oslo, Norway, and has operations in Norway, Denmark, the Netherlands and Switzerland. Telio is one of the largest providers of broadband communications services in Norway, measured in traffic. Founded in 2003, it was the first company to offer VoIP in Norway when it launched the service in 2004. Telios value proposition is to provide a continuously improving end-user experience by offering innovative and user-friendly telecommunications services based on flat-fee pricing. A combination of Telio offerings can replace traditional fixed telephone services by using the Telio VoIP solution over a fixed or mobile broadband connection.

Exhibit 8: Hub-Based IP Interconnection Landscape

Source: Yankee Group, 2011

Competitor Analysis/Market Overview

ENUM DIRECTORY SERVICES
ENUM Registry Services

GSMA PathFinder-Compliant

INTERCONNECTION HUB
Voice Interconnection

ADDED SERVICES
Flexible Settlement and Financial Clearing Services

XConnect Telcordia Syniverse Neustar IntelePeer Arbinet TNS BT - IP Exchange Neutral Tandem Sprint - PIN NetNumber

O O O O O O O O O O V/O

Global Global Global Global US EU/US/HK Global UK US US Global

4 4 4 4 4 4 4 4 0 4 4

4 4 6 4 0 4 4 0 0 0 4

4 0 6 0 0 4 0 0 0 0 4

4 0 6 0 4 4 6 4 4 4 0

4 0 0 0 6 0 0 6 0 0 0

4 0 0 4 0 0 0 0 0 0 4

4 0 0 0 6 6 6 0 6 0 0

4 0 0 0 0 4 0 6 0 0 0

4 0 0 0 0 4 0 4 4 4 0

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Copyright 2011. Yankee Group Research, Inc. All rights reserved.

Enterprise Federations

Private Exchange/IPX

Origination and Termination Services

(O)perator/(V)endor

Multimedia IP (HD, video, etc.)

Inter-Registry Interoperability

Markets

Registry

4 0 0 0 6 0 0 0 0 0 0

March 2011

Telios mission is to be a major force in defining and providing fixed, video and mobile Internet communications to the consumer and small businesses.

As XConnect developed its hub-based federation model, it aligned with Telios views on how the telecom world should evolve while offering a distinct cost savings due to its multilateral basis. In particular, Telio takes advantage of the following XConnect hubbased interconnection services: National peering for domestic interconnect International peering via the XConnect Global Alliance Settlement-free peering via the Free Alliance High-definition voice interconnection via the HD Alliance The original interconnect between Telio and XConnect was completed in 2007 and went live approximately 20 days from the start of interoperability testing. Telio recently expanded its scope with XConnect to include its European subsidiaries, which took about 10 days to add.

Business Challenge
The business challenges that drove Telio to consider a hub-based IP interconnect involved operational cost control, management efficiency and differentiated service strategy. As it does in several countries, IP-to-IP communications in Norway falls outside the regulatory framework covering traditional telecommunications services (e-com services). The dependency on incumbent operators for regulated interconnect can be a major challenge in maintaining service profits for VoIP operators. Managing the costs associated with both national and international interconnect required a solution that was both costeffective and flexible enough to remove the administrative burden of maintaining several bilateral peering arrangements. On the service side, Telio required a solution that allowed for the cost-effective delivery of innovative IP services, such as HD voice calling, presence and video services, as well as pure IP delivery among the greatest amount of networks and subscribers.

Why XConnect?
Ultimately, XConnect was chosen due to the diverse range of federation options it could provide to Telio to reduce costs and increase service reach, quality and profitability. A major consideration was the fact that XConnect had multiple, live operating federation services in commercial use and allowed for both national and international peering in a neutral manner. Telio gives XConnect high marks for its overall scalability, since it offers the ability to easily peer with new service providers as they join. Technically, support for advanced interworking across multiple protocols (SIP, H.323 and XMPP) allowed for the greatest possible service reach and security features to protect Telios assets within the federated environment. Additional consideration was given based on the level of peering control and policy XConnect could provide; Telio could choose a high degree of interconnect configurability and control. Telio also gave consideration to business model flexibility, which removed many shortcomings of the traditional interconnection model.

Solution
To meets its business challenges, Telio decided to initially outsource IP interconnect to XConnect in a pay-as-you-grow model, thereby reducing the dependency for interconnections based on more capital-intensive TDM/IP gateway models of the past. The hub-based interconnect service allowed Telio to interconnect once and gain access to many networks it wouldnt have been able to access using the bilateral peering models of the past. The cost and complexity to re-create that reach through a bilateral model would be onerous at setup and beyond, on both a technical level (ENUM registry, interworking, security) and a commercial/ contractual level.

Copyright 2011. Yankee Group Research, Inc. All rights reserved.

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Next-Generation Exchange-Based IP Interconnection

Benefits
Telio experienced the following benefits through its partnership with XConnect: Reduced opex and capex due to a single connection to the interconnection hub Increased ARPU and APPU through longer calls, lower customer management cost, better customer experience, and faster and better bundling of services at higher fees Reduced churn through more compelling and sticky customer experience and faster and better bundling of services, both within and outside of Telios network Availability of accurate call routing and addressing information through a global ENUM registry Assurance that calls are routed as IP all the way between networks to preserve call quality and exploit the revenue potential of new multimedia services Easier creation and management of multiple interconnect agreements, which involve complex work items such as interoperability testing, peering policy management and policy enforcement; XConnects interconnection hub allows Telio to interconnect with more than 150 services providers using just one agreement Negotiation of commercial agreements and settlement rates between interconnected networks Ensured network security across multiple interconnection partners Access to additional federated communities of interest such as members of GSMAs PathFinder service, other IPXs or other federated UC communities

Future Plans
In the future, Telio expects XConnect to remain a vital part of its operationsin particular, in support of new services-based federations in RCS, IM, video, presence and mobile VoIP. Telio expects its partnership with XConnect guarantees that future deployments and services will work seamlessly, and it anticipates that XConnect will be a key partner in the delivery of video services. Video interconnection is a new service segment with many more variables attached to it (handsets, screens, codecs), and that will demand a comprehensive review of the traditional interconnection model. Solutions in this area are still matriculating and represent an opportunity for both Telio and XConnect.

VII. Conclusions
The rich nature of IP services has caused an explosion of market demand. Traditional network service providers, Internet-based service providers and enterprise vendors alike are carefully evaluating strategies to aggressively compete for new customers and defend against subscriber churn. Against the backdrop of the current economic environment, service provider investment will either save costs or increase revenue. Multilateral hub-based peering/interconnect for IP services provides an opportunity to accomplish both. Choosing a multilateral interconnection partner is becoming a strategic imperative for service providers that wish to increase the network effects of their IP services while controlling costs. It is important to understand the differences among interconnection service providers regarding ENUM registries, peering connections and their services in support of peering policy, security and management. Arming oneself with the right set of questions will lead to a successful choice.

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Copyright 2011. Yankee Group Research, Inc. All rights reserved.

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