next-generation exchange-based ip interconnection ip era requires an evolved interconnect model ......

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

Next-Generation Exchange-Based IP Interconnection

by Brian Partridge | March 2011

This custom publication has been sponsored by XConnect.

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•

© Copyright 2011. Yankee Group Research, Inc. All rights reserved.2


II. IP Services Will Dominate the New Services Landscape

It is not news that circuit-switched networks designed for high-

quality 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 today’s 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.

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 real-

time 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.

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

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.

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.

NOTE ON TERMINOLOGY

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

March 2011

Private IPX Domain

PathFinder

ISPFNO

MNO

ISPFNO

MNO

IM

Voice VS

MMS

Mobile SubscribersMobile Subscribers

IM

Voice VS

MMS

Local ENUM

Local ENUM

Trusted Environment

Internet

IPX2

IPX3IPX1

The benefits of IP services come with new security risks such as toll

fraud, identity theft, spam over IP telephony (SPIT) and denial-of-

service (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 today’s 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

GSMA’s 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 ServiceSource: Yankee Group, 2011



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 laye• r 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.

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

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.

Exhibit 2: ENUM DefinitionsSource: Yankee Group, 2011

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.

Public ENUM

Private ENUM

Carrier ENUM


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 fast-

growing 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 PenetrationSource: Yankee Group, 2011

24,497

29,804

35,118

39,946

44,220

47,934

14%

17%

20%

23%

25%

27%

0%

5%

10%

15%

20%

25%

30%

2009 2010 2011 2012 2013 2014

0

10,000

20,000

30,000

40,000

50,000

60,000

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



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 economy—but 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 Group’s 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

adoption of advanced UC services planned over the next 24 months,

including video and mobile VoIP, both of which benefit from hub-

based 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 Apple’s

iPhone 4. While these devices capture our imagination and certainly

raise the visibility of video calling, their success is confined to the semi-

closed 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.

Exhibit 4: UC Components Deployed, Piloted or PlannedSource: Yankee Group’s Anywhere Enterprise: 2010 US Unif ied Communications (UC) FastView Survey, December 2010

33%

40%

42%

46%

48%

50%

56%

58%

59%

59%

59%

69%

74%

74%

23%

25%

19%

22%

19%

28%

22%

21%

20%

17%

21%

19%

13%

13%

23%

18%

21%

18%

21%

13%

15%

12%

15%

18%

12%

8%

12%

7%

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

Speech recognition apps

Telepresence

Soft phones

VoIP apps on IP phone

Location-based services

Telecommuter solutions

Mobile phone integration

Desktop applications

In-house audio conferencing

Unified messaging

Desktop video conferencing

Web conferencing

Room-based video conferencing

Corporate IM

Already deployed

Pilot-testing

Plan to deploy in next 24 months

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

n=443

http://www.yankeegroup.com/ResearchDocument.do?id=55081

http://www.yankeegroup.com/ResearchDocument.do?id=55081


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.

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.

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 hub-

based interconnection providers help solve this issue.

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 PSTN—an

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

services (see Exhibit 6 on the next page).

Exhibit 5: Skype Users Top 500 Million Source: Yankee Group, 2011

Skype Users by Year (in Millions)

171276

405521 560

-

100

200

300

400

500

600

2006 2007 2008 2009 2010

0



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.

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•

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?

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


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?•

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

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 Multi-

Rate 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 voice-•

based Vishing attacks?

What is the process for maintaining the latest information •

related to signaling attack signatures?



Reporting and Settlement

The opportunity to eliminate PSTN’s 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 high-

bandwidth 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?•

http://en.wikipedia.org/wiki/Call_termination


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, signaling-

layer 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.

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 ENUM-

based IP interconnection federations, called the Global Alliance, and

the world’s 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.

Exhibit 7: XConnect Federation-Based Interconnection Exchange ArchitectureSource: Yankee Group and XConnect, 2011

Master Registry

Provisioning Manager

Replication Server

External Sources

Web Server

Hosted Directory

Server

Master Directory

Server

Policy and Security Server

Session Border

Element

Session Control Element

Session Border

Element

Session Media

Element

Reporting Server

Rating Server

Quality Control Server

Local Routing Engine

Session Border

Element

Session Media

Element

Web Browser

(Reporting)

Web Browser

(Provisioning)

Session Border

Element

Session Media

Element

ENUM Directory Management Subsystem

Media Management Subsystem

Call Data Management Subsystem

Service Provider

Service Provider

Session Management Subsystem

Call Flow

Media Flow

API

Provisioning

Replication/Data Push

Number Query

API

Number Query



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.

Exhibit 8: Hub-Based IP Interconnection LandscapeSource: Yankee Group, 2011

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.

Telio’s 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.

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

(O)p

erat

or/(

V)e

ndor

Mar

kets

Reg

istr

y

ENU

M R

egis

try

Serv

ices

Inte

r-R

egis

try

Inte

rope

rabi

lity

Voi

ce In

terc

onne

ction

Mul

tim

edia

IP

(HD

, vid

eo, e

tc.)

GSM

A P

athF

inde

r-Co

mpl

iant

Flex

ible

Sett

lem

ent a

nd

Fina

ncia

l Cle

arin

g Se

rvic

es

Priv

ate

Exch

ange

/IPX

Ori

gina

tion

and

Te

rmin

ation

Ser

vice

s

Ente

rpri

se F

eder

ation

s

ENUM DIRECTORY SERVICES INTERCONNECTION HUB

ADDED SERVICES

Competitor Analysis/Market Overview


March 2011

Telio’s mission is to be a major force in defining and providing fixed,

video and mobile Internet communications to the consumer and

small businesses.

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 cost-

effective 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.

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 wouldn’t 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.

As XConnect developed its hub-based federation model, it aligned

with Telio’s 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 hub-

based 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.

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 Telio’s 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.



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 Telio’s 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; XConnect’s 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 GSMA’s PathFinder service, other IPXs or other

federated UC communities

Future Plans

In the future, Telio expects XConnect to remain a vital part of

its operations—in 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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Headquar ters

Brian Partridge, Vice PresidentBrian 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.

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© Copyright 2011. Yankee Group Research, Inc. Yankee Group published this content for the sole use of Yankee Group subscribers. It may not be duplicated, reproduced or retransmitted in whole or in part without the express permission of Yankee Group, One Liberty Square, 7th Floor, Boston, MA 02109. All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.

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