Class 5 replacement products are starting to gain real traction in the marketplace, particularly with independent telephone companies, which in recent months have become hot prospects for a variety of equipment suppliers.
Infonetics Research reports small Class 5 switch replacement and augmentation expenditures in North America are projected to grow 1,866 percent between 2002 and 2006, from $44.5 million to $875.5 million. "There are three main factors driving companies to replace small Class 5 switches or to adopt a cap-and-grow strategy: the need for additional switching capacity, introducing new services to meet customer demand or government mandate, and upgrading equipment to meet regulatory requirements," says Infonetics Research analyst Kevin Mitchell, lead author of the report. "The nimble IOCs -- numbering over a thousand in North America -- will lead the replacement and augmentation charge as early adopters of next-gen voice equipment, ahead of the slower RBOCs."
Rural independent operating companies (IOCs) "represent perhaps the only customer base that is both experiencing growth and is financially sound enough to invest in network upgrades to accommodate that growth," notes Joe McGarvey, senior analyst with Current Analysis. "An IOC can turn on a dime when it comes to adopting new technology, as long as it is cost effective," he says. However, these rural telcos are "incredibly cost conscious and largely unwilling to discard existing equipment without evidence of cost savings, making a flash cut sales pitch a difficult proposition," he adds.
So a variety of vendors now are appealing to IOCs with small and/or alternative Class 5 products. In the running are Ericsson with its AXE, Nortel with its DMS 10 and Siemens with its DCO as well as next-gen voice startups such as AFC, CopperCom, Gluon Networks, Santera, sentitO Networks and Taqua Systems, Mitchell says. Additionally, Lucent and Nortel tell xchange both have new strategies to target the independent telcos.
To IP or Not to IP
McGarvey says most of the products in this space are just TDM-based "mini Class 5 switches that have gone through the disintegration process softswitch called for -- with separate call logic and call control." He believes that one of the least influential factors of a Class 5 replacement is the presence of packet-based features, but he notes that carriers do want to know that the migration path toward packet will not be a costly or complication one. "In this regard, next-generation players seem to have an advantage over Nortel and Siemens, which have so far revealed migration plans to packet-based services that are lengthy, involved and expensive," says McGarvey, adding that Taqua clearly has the lead in Class 5 replacement with the independents.
Charles Vogt, Taqua president and CEO, claims his company is the only vendor today replacing Class 5 switches. Taqua is shipping a TDM-only switch called the Open Compact Exchange (OCX). "If I had IP, my product would be collecting dust," he says. In the future, he adds, customers will be able to add IP functionality through the OCX's card-based architecture.
Four-year-old Taqua already has 35 commercial customers, most of which are rural telcos. And the company is positioning to capture more by doubling its sales force of 12 by the end of March and beefing up its marketing and customer support teams exclusively to better target the independents. Taqua also is the only next-generation switch provider that's been through the Rural Utilities Service process in the last two years, says Vogt. (Telcos receiving grants or low-interest loans from the U.S. Department of Agriculture's RUS fund can spend that money only on products that are RUS approved. For more on RUS funding and the approval process, see this month's cover story.)
Like Taqua, Santera has been in the market for a few years with a Class 5 alternative. The company has disclosed 10 customer contracts and has another six in field service, says Santera CEO David Heard. The company's customers include independents that are using SanteraOne for Class 4/5 replacement; large wireline carriers using the box for packet tandem functionality; and even wireless network operators in need of additional tandem switching capacity.
Unlike Taqua, Santera currently supports ATM and IP switching in addition to native TDM switching, notes Heard. The Santera box, however, does not do direct termination of POTS traffic; instead, the company is working with AFC "to most cost effectively terminate copper," says Heard.
At press time, Santera was in the RUS process, with an expectation to receive RUS approval by the end of this year. Still, Heard notes Santera offers a different kind of box that is based on an open architecture and can scale up to "a couple million lines on one switch," unlike some competitors with low line counts. And he's circumspect about the IOC opportunity, indicating it's a nice revenue stream, but not the sole focus for Santera. "The needs of the rurals are not that different from those of the RBOCs. That's how DMS-10 and Nortel started the market," he says. "[In formulating its strategy] Santera said 'Geez, as part of this market strategy it's nice to have big large lumpy contracts with RBOCs, but it's nice to have that mortar with independents between those large lumpy contracts.'"
Class 5 Newbies
A growing group of competitors is now scraping for that mortar.
CopperCom recently took the wraps off its new CSX1100, a Class 4/5 switch targeted at small to medium independent operating companies. The product is focused exclusively at independents with as few as 500 lines, but can scale to support up to 5000 subscribers, says CTO Martin Taylor. Taylor says CopperCom has an advantage in the independent market because most of the cost of its product is in the line cards, allowing the product to scale as needed. The initial version of the single-shelf, half-rack system is pure TDM, but packet voice is on the roadmap.
Gluon Networks is also targeting small rural carriers with its Converged Local Exchange (CLX) broadband-enabled Class 5 local "softswitch," citing a pent-up demand for new equipment to replace 12- to 15-year-old Mitel, Nortel DMS-10 and Siemens DCO switches that are approaching end-of-life.
Unlike a "classic" softswitch, the CLX provides actual physical access for two-wire POTS lines as well as aggregated interfaces to digital loop carriers. It integrates voice and DSL access, Class 5 switching, CALEA, circuit-to-packet interworking, signaling and transport into a single compact system. "Our value proposition is that we support all legacy (revenue) services today and fit, without disruption, within today's network architecture (SS7 etc.)," explains Rob Avery, vice president of marketing for Gluon, which is now in the process of seeking RUS approval for the CLX. "As time progresses and the softswitch thing takes off, we can start to expose the next-gen protocols and signaling we have inside. We call this a 'softswitch in a hard shell' or next- generation softswitch. So, inside we use all the new concepts but have hidden them from the legacy network with a thin veneer of legacy interfaces."
One CLX chassis can support about 500 POTS lines or 1,000 to 2,000 lines through a GR303 interface to a DLC. The company's get-started configuration, called "Cap and Grow," runs less than $100,000 and enables rural LECs to stop growing on their existing systems and put all new services on CLX. "Since the old switch doesn't support the GR303 interface, we can provide that side by side with their existing switch."
The Forecast for Class 5 Alternatives
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Five-year total expenditures for small Class 5 switch replacement or augmentation are $2.3 billion
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1 percent of the installed base of small Class 5 switches will be replaced or augmented in 2002, increasing to 6 percent in 2006
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Service providers have purchased or will consider next-gen voice solutions from startup manufacturers, but the issue of financial stability and sustainability must be addressed
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Vendors of small Class 5 switches are not ignoring the replacement or augmentation opportunity, but they must tread carefully so they don't cannibalize their legacy voice switch sales and send confusing messages to customers
Source: Infonetics Research
AFC DLCs Make a Switch
AFC, which got its start in the independent telco world, is also going after the Class 5 alternative opportunity with the rurals, Sprint and eventually the RBOCs, Ali Kafel, vice president of marketing, tells xchange. But AFC's solution is very different than those from the likes of Santera and Taqua.
The AFC solution, which will be available for customer trials in mid 2003 and generally available by the end of next year, will use DLCs in concert with existing Class 5 switches to enable new services, he says.
"Class 5 switches will not be replaced in the near future in terms of cost or services," says Kafel. "One of the big challenges for softswitches for Class 5 is a lack of complete services.... Even if service providers wanted to offer 20 percent [fewer] services, they couldn't do it legally."
So AFC is adding VoIP gateway functionality and a H.248 interface for call control to its digital loop carriers so the new DLCs can support next-gen services such as voice over IP for residential users or IP Centrex, he says. "This is a true evolution story," he says, adding. "I am surprised at the number of companies that are not paying attention to the broadband deployment that's happening." When there's a broadband DSL or cable pipe to the subscriber, he explains, voice is just one of the applications that can run over it, he adds.
Tips to Help Vendors Appeal to Rural Telcos
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Demonstrate stability
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Deliver products designed to serve somewhere between a few hundred and a few thousand subscribers
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Be careful not to introduce technology that exceeds the expertise of the carrier's technical staff
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Provide products at what the carrier considers a reasonable cost (For example, platforms that do not offer direct termination of POTS lines will gain traction only if they can demonstrate that the expense of alternative termination equipment such as channel banks, and DLCs for POTS lines is not prohibitive.)
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Get Rural Utilities Service approval
Source: Current Analysis
Big Vendors Think Small
In a move to appeal to the independent telcos, Lucent Technologies Inc. at press time was readying a new Class 5 replacement strategy. Meanwhile, Nortel Networks this quarter will make commercially available a new release of its SUCCESSION Communication Server 2000 (CS 2000), which will combine local and long distance functionality. Siemens, another legacy switch provider, also has a softswitch, which it says it suitable for Class 5 replacement, under its SURPASS portfolio.
"Our rural launch we did a few months ago with CS 2000," says Matt Jackson, senior manager of carrier VoIP marketing at Nortel. Now the new Nortel CS 2000 release, called the SN05, will offer transparency to the company's 3000 product and will include local features and tandem features such as E911, CALEA, operator services, IP Centrex and more.
As for Lucent, the company already has multiple options today suitable for the Class 5 replacement market for IOCs, says Lucent spokesman Mike Alva, who adds that the vendor expects to come out with a more specific strategy targeting the independents shortly. Existing solutions for smaller networks include a stand-alone Very Compact Digital Exchange switch (known as VCDX) that can support up to 28,000 customers; a remote switching module that can run off a larger switch up to 2,000 miles away and supports up to 28,000 customers. Lucent says the latter solution is ideal where a service provider has small clusters of customers in an area; and a smaller remote unit that can support up to about 3,600 traditional voice lines and data lines such as DSL, in a single cabinet. As service providers, including IOCs, want to add packet infrastructure to their network, Lucent will offer them a solution to evolve their Lucent switches to support next generation networks, says Alva.
