PDF of this tutorialTo date, the telecom industry has considered DSL a data-oriented service. The explosive growth in Internet traffic to homes and businesses has been the primary driver of DSL’s deployment as a replacement for both dial-up modems and fractional T1 data services. However, data CLECs are discovering that adding voice services to their portfolio yields an attractive business model, and ILEC’s are discovering that VoDSL allows them to free up valuable PSTN facilities. Although voice and data traffic are of roughly equal magnitude in terms of bits transmitted, voice services command over 90 percent of telecom revenue. CLECs wishing to capture a share of this lucrative market are examining solutions to providing voice service to their small-business DSL customers.
The Business Case for VoDSL Service
Packetized voice, the transmission of telephone calls over a data network with xDSL as the access method, is widely predicted to become a reality over the next five years. International Data Corporation (IDC) research forecasts that telephony on packet networks will grow from $2 billion in service revenue in 1998 to over $25 billion in 2002, capturing a 20-percent share of all telephony worldwide.
There are many compelling reasons why packetized voice makes sense. Using the same network for data and voice allows the most efficient use of available bandwidth and also enables more intelligent value-added services, thus decreasing costs while increasing revenues. These benefits are industry-wide, accruing to both ILECs as well as CLECs.
Packet-based, or data CLECs who offer DSL–based data service, stand to benefit even more from VoDSL than the industry as a whole. These CLECs, such as Covad Communications, NorthPoint Communications, and Rhythms NetConnections, are discovering that adding voice capability to a DSL infrastructure originally justified by data services yields an excellent return on investment. The bandwidth available on a single DSL circuit allows the carrier to provide data services in the range of hundreds of kbps and also accommodate 4 to 16 plain old telephone service (POTS) lines. The incremental revenues and costs associated with these POTS lines form a compelling business case, as shown in Table 1.
| Data-Only Service1 | Incremental Revenue and Cost for Adding Voice2 | Total for Data + Voice DSL Line | |
| Monthly Revenue | $125.00 | $160.00 | $285.00 |
| Monthly Recurring Costs | |||
| co-location space | $10.00 | — | $10.00 |
| local loop rental | $20.00 | — | $20.00 |
| traffic backhaul from DSLAM | $5.00 | $5.00 | $10.00 |
| network management, operation | $15.00 | $10.00 | $25.00 |
| Monthly Amortized Capital Costs3 | |||
| truck roll | $10.00 | — | $10.00 |
| DSLAM equipment | $10.00 | — | $10.00 |
| DSL CPE equipment | $10.00 | $30.00 (IAD) | $40.00 |
| voice gateway equipment | — | $6.00 | $6.00 |
| class-5 switch ports | — | $9.00 | $9.00 |
| Total Monthly Costs | $80.00 | $60.00 | $140.00 |
| Contribution Margin | $45.00 | $100.00 | $145.00 |
| Margin | 36% | 63% | 51% |
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Notes
The figures shown are per–DSL circuit, per month.
1assumes carrier has 500 DSL lines per CO; data service is assumed to be at 384–kbps symmetric 2assumes each DSL line with voice capability carries 8 POTS circuits, with each POTS circuit generating $20 of net revenue per month; costs of voice gateway and Class-5 switch ports assume a 4-to-1 oversubscription of POTS circuits 3amortized over 36 months |
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Table 1. CLEC’s Revenues and Costs Associated with Data and Voice Services
This analysis shows that while providing data-only service over DSL is an attractive business, adding voice services for a customer dramatically increases revenue with minimal costs. The major costs associated with adding voice capability are an integrated access device (IAD) at the customer premises, a voice gateway, and a Class-5 switch at the carrier’s point of presence (PoP). Or, these services may be leased from a co-lo hotel, with additional network-management costs. Also, allowance has been made for increased backhaul costs as a result of the higher QoS requirements. Table 1 clearly shows that voice on DSL lines is a winning proposition, providing the additional contribution margin needed to support the CLEC’s overhead, SG&A, and profitability.
