When many business users are switching to voice over IP to save on toll calls, there is a certain irony in Telecom NZ switching over to the same protocols. However, for Mark Ratcliffe, chief information officer of Telecom NZ, internet-based telephony is where the market is going and Telecom has to be there.
In August 2005, Telecom announced a $1.4 billion transition to its "next generation network (NGN)" and completed a trial to small business and residential areas a month ago.
Telecom will spend $220 million in new network and systems capability to support these next generation services.
Ratcliffe says there was nothing wrong with the old PSTN network. It had reached the end of its lifecycle and the time had come to install a new network.
"New Zealand was the first country to move from analogue to digital phones 20 years ago and as a consequence we are in the lifecycle of replacing infrastructure. IP is where the world is going. It is the standard for how all telecommunications companies are upgrading," he continues.
Telecom has been working on the switch to an IP-based network for five years and believes the move will determine the technology direction of Telecom's core IP voice infrastructure in the next decade.
Indeed, the move heralds the biggest architectural change ever made to the phone network, the fundamental design of which dates back about 100 years.
Telecom says its NGN voice service will go live early 2007, delivered over both DSL and fibre-to-the-premises (FTTP). The outgoing network will continue until at least 2012, by which time the country's 1.7 million customer lines will have changed to the new platform.
The packet-based IP system will see the replacement of 600 of 700 telephone exchanges covering tight geographical areas. Instead, the surviving 100 or so exchanges will run fibre optic cable right out to roadside cabinets - the first point of aggregation for home phone lines - which typically support a few hundred households.
Equipment in the roadside cabinets will also have to be swapped out to deliver IP telephony, possibly with remote concentrators to allow Telecom to deliver "triple play" services - on demand video, broadband internet and IP-based voice services.
Ratcliffe says a major change will be the removal of these proprietary-based exchanges, with the survivors instead using voice applications running on open standards software.
Furthermore, users may need new telephone handsets or adaptors to attach to their existing phones in order to make phone calls as and when the PSTN is finally retired after 2012. However, he doubts there will be an issue over this, as he likens the process to people upgrading their PCs.
The traditional fixed line "phone" number typically shared by a number of people in a household may also disappear. All customers are likely to be given the option of having one or more contact numbers which they will be able to allocate to any phone at any time, and over which they will have individual control.
The three-month trial of business and residential customers revealed users particularly appreciated the web portal for the voice service, as it gave them more control over various features of the service.
Telecom says the users found the quality of the sound was better, due to greater bandwidth, and liked the converged mobile/landline handsets.
A dose of its own medicine
Telecom likewise uses IP-based telephony across the organisation. When people leave voice messages, the message pops up in Microsoft Outlook, and can also be retrieved over the PC. The system is also easier for diverting messages.
"It gives customers more flexibility all-round and puts power into their hands without us having to be involved. They don't have to ring our call centre to reroute calls," says Ratcliffe.
While those who participated in the trial report high sound quality, Ratcliffe says the broadband service will allow variable standards of voice based on bandwidth speeds. At present, the copper-based networks give good sound quality because the user has a dedicated channel, the line of copper, totally dedicated to that call.
Already, Telecom offers IP telephony to business users that it considers to be part of the NGN.
Ratcliffe cites the One Office suite of data products and services delivered to business users, which for several years have offered seven levels of quality of service.
Broadband speeds are just part of it, and Ratcliffe says CIOs have other things to worry about, such as security when sending sensitive data. "The big profound change comes when residential customers are all using IP for their calls."
As Telecom moves more to a standards-based network, Ratcliffe says by reducing the number of suppliers, it reduces complexity and allows greater economies of scale. "We tend to look at reducing costs as a way of staying in business, competitive markets drive prices down, that will continue."
Telecom initially had $8 call caps, which has since been reduced to $2. Though pricing plans have yet to be set, IP-telephony may allow "all-you-can-eat fixed monthly fees", or "cheap" per minute charges, depending on what people want, he says.
Alcatel is Telecom's main supplier for the NGN, which follows its role as principal network technology supplier for fixed lines for five years. Similar 10-year arrangements exist with Lucent for mobile provision.
"Rather than make decisions on who to use on subcomponents, we had Alcatel to help over integration. We ensure we are competitive by running regular benchmark tests," explains Ratcliffe.
The current deal has six more years to go, with Cisco, Nortel, NEC as potential partners in the future. Telecom considers Alcatel, EDS, Lucent and Microsoft as tier-one partners as they are all involved in supporting its major technologies.
When it comes to selecting vendors for its fixed line network, Ratcliffe says Telecom asked a variety of organisations that it wanted to have a long-term partnership with. The process took over a year as Telecom whittled down 10 potential partners to one. Among the factors it considered was the global experience of the potential partners.
"We went to the headquarters describing what we were looking for and asking them how they could give a perspective of how they could fit into that," he explains.
Ratcliffe describes Telecom as a "fast follower" and not necessarily the first, in technology.
"Backing large organisations with international reputations brings expertise to New Zealand and allows us to get sale advantages, even though we are [globally] a very small company," he says.
Thus, Telecom can get good deals from Sprint on mobile handsets, allowing it to compete with larger telcos like Telstra, he states.
"I was part of the decision-making process in choosing the vendors. I sit on the governance bodies that manage the relationship with them and specifically, I am responsible for technology strategy, technology architecture and building the NGN, the whole aspect."
He adds, "One of the reasons why we use strategic partnerships is [to get] help from specialists."
Indeed, as Ratcliffe was speaking to MIS in Mid-march, Telecom was launching a partnership with Nortel, Cisco and Zeacom to help businesses transfer to VOIP.
Telecom launched two products, IP Voice Emerge for smaller, single-site enterprises, and IP Voice Evolve, for larger multi-site businesses, using products and services from the three companies.
Telecom had worked with its ICT division Gen-i to develop this collaborative offering and promised more such collaborations in the future as it responds to growing market demand for VOIP.
Ratcliffe admits the largest impact of the NGN is likely to be on the consumers, but business users should look out for the broader range of data services it will bring.
Furthermore, it affirms the continuing shift in Telecom from being a telco to a services provider.
"We have moved very strongly into IT. We see ourselves as an IT and telecommunications provider. Business customers have seen our takeover of Gen-i and Computerland and we are now the number one IT services company. That is a big change. We saw we had to be more than a provider of network services."
This also includes the provision of media services. Ratcliffe says Telecom has a "good relationship" with Sky as a reseller.
"We will be talking to them about providing a broader range of services. We are looking to a more on-demand interactive experience, linking the PC and internet."
Telecom already offers mobile TV, just like Vodafone, and it also wants to make TV more "personalised", giving more control to the end user.
"There will be video on-demand when we work out the economic models. These are all things the network is capable of... We are in active conversations with SKY about set top boxes," explains Ratcliffe.
"Some 600,000 New Zealanders already have more than 30 channels. The profound change is giving control to the end user. I have a personal video recorder. I don't watch live TV any more. We just record everything and watch it when we want."
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