Connecting With ISPhone

By: Gerry Blackwell
Monday, May 12, 2008 10:12:23 AM EST
URL: http://www.linuxplanet.com/linuxplanet/reports/6482/1/

Into the Wayback Machine

Times change, businesses have to adapt. Any entrepreneur knows this. But nowhere is it truer, perhaps, than in the telecom and Internet industries.

Just ask ISPhone Inc., the Traverse City, Mich.-based IP telephony wholesaler we first wrote about in 1999 when founder and president Victor von Schlegell was just getting his company off the ground.

ISPhone survived, thrived, and still caters to small and medium-size ISPs--"we're a phone service enabler for service providers," is how von Schlegell describes the company--in large part because it was willing and able to adapt to the topsy-turvy of the telecom industry.

When a press release came over the ISP Planet transom recently announcing a new ISPhone product that allows service providers to integrate their Asterisk switching systems with RADIUS-based authentication and billing, we were intrigued. This didn't sound like the ISPhone we remembered. Maybe it was time to revisit.

Back in 1999, von Schlegell saw ISPs--even small ones--waking up to the fact that they could diversify and increase ARPU (average revenue per user) by adding IP-based phone services to their mix, and he saw a business opportunity for himself.

ISPhone would buy long distance services in bulk from new competitive carriers and wholesale it to fledgling ISP phone service providers. The ISPs could still turn around and retail long distance to their customers at prices far below what telcos were charging.

"Part of the original model," von Schlegell explains, "was that we'd create a network of service providers that would in effect be a community--and they'd terminate calls to and from one another."

ISPhone would provide the interconnection among customers and to and from the public switched telephone network (PSTN) through its IP phone gateways.

But not long after we talked to von Schlegell in 1999, the North American long distance arbitrage market started to go south. As competition among carriers heated up, rates plummeted, and margins for arbitrageurs like ISPhone were pared to razor thin.

"Just terminating calls inexpensively, which we still do, was no longer enough," von Schlegell says.

Moving On

ISPhone provides call termination for all its customers, including the North American ISPs it once thought would be its exclusive clientele. But North American ISPs now represent a minority.

As the arbitrage opportunity dried up here, the global spread of telecom deregulation opened up new arbitrage markets overseas. Today, of ISPhone's 2,000-plus customers, "most" are offshore--in Africa, parts of Asia, the Middle East, and Eastern Europe.

In most countries outside North America, telephone service was exclusively provided by PTTs (Postal, Telegraph, and Telephone companies) that were sometimes corporations and sometimes government ministries (imagine competing against the FCC). But because the powerful World Trade Organization (WTO) has mandated telecom deregulation, governments that want to play in the new globalized economy are having to loosen the hold of their PTTs on the industry. And on lucrative phone service revenues.

"Some are moving pretty quickly," von Schlegell says. "Some are moving as slowly as they can."

He sees a continuum of regulatory climates. In some countries, offering telephone service in competition with the PTT is still a black market activity. Participants are not only shut down when found but may end up in jail.

And then there are various shades of gray, starting with countries where competitive telephone services are still illegal, but the government turns a blind eye. At the other end of the spectrum are "white" markets, places like the U.S., Canada, Australia, and most Western European countries, where "anybody can do anything."

About 10 percent or 15 percent of ISPhone's customers are in black market countries, 30 or 40 percent in white markets, the majority in gray markets. Von Schlegell can track the spread of telecom deregulation as the number of enquiries the company receives from a country or region starts increasing.

The Next New Edge, With Results

But, Von Schlegell says, terminating calls inexpensively is not enough on its own--and will become less and less lucrative as the spread of deregulation continues. Luckily for ISPhone, it was able to latch on to something else that started happening in the evolving telecom industry.

In the beginning, ISPs themselves mainly saw the opportunity as long distance arbitrage. But as deregulation took hold, it created other impacts. ISPs began to understand that there were in fact all kinds of opportunities in telephony, including offering soft phone services, and even dial tone. And any number of models for pursuing them.

Indeed, some concluded that if they wanted to compete with the phone companies moving onto their turf, if they wanted to survive long term, they would have to follow the telcos' lead and offer customers a triple play--bundled broadband Internet, telephony and pay TV.

"So service providers were starting to compete not just with the long distance arms of [incumbent telephone companies], but also with the local service arms," von Schlegell says. "In order to keep up with them, we realized we had to be in position to give them those services."

In the telephony world, it's the distinction between services offered using Class 4 switches--the fairly simple equipment used to route long distance calls--and much more sophisticated Class 5 switches that allow phone companies to do the more complex routing required of local service and to provision call management services such as voice mail and caller ID.

ISPhone has developed a complete telephony platform with Class 4 and 5 capabilities, using modern softswitch technology (software running on a computer). It's based on a mix of ingredients, mostly from Cisco, with some open source components, including SIP (session initiation protocol).

And the company has built extensive infrastructure, with points of presence (POPs) in New York, Chicago, Los Angeles, Indianapolis, Detroit, St. Louis, and Boston. Each location houses servers, PSTN gateways, and other gear. The coastal POPs provide the overseas connections.

All of this allows ISPhone to offer a range of hosted and termination services to a range of types and sizes of service providers--anywhere in the world.

Some customers choose to build some or all of their own infrastructure and may only use ISPhone for long distance termination services. The company can still save them money just because its rates from carriers are much lower than an individual service provider could ever get on its own.

Setting up to use ISPhone's interconnection services costs $250. Then the company charges per minute for usage. If the service provider uses ISPhone's billing and authentication services, per-minute charges are a couple of percentage points higher.

Other customers want to start off using ISPhone's hosted services--doing little more than the marketing themselves--and then when they've proven their business models, bring critical infrastructure inhouse. Many, though, never want to sink capital into telephony equipment, or take on the costs and headaches associated with managing it.

"A lot of them have to be in the voice business whether they like it or not," von Schlegell says. "So when they ask themselves, 'What's the least expensive, best way to do that,' usually they decide it's to use a hosted service."

ISPhone wholesales local phone service to these customers for about $12 to $18 a month per subscriber, depending on the add-on services provided, such as voice mail and caller ID. "And usually, they turn around and sell that for $20 or $25," von Schlegell says.

He claims not to be aware of competitors, which he says come and go--except one in Denver, the name of which he's forgotten (that would be Global Crossing).

"What distinguishes us," von Schlegell says, "is that we're more prepared to work with smaller service providers than [the competitors] we've known in the market in the past. They typically weren't interested in working with relatively high maintenance service providers. They were interested in lots and lots and lots of volume."

"But that was never a problem for us. We're happy to work with people who are just getting into the business, who are small and growing."

Asterisk

The new Asterisk-RADIUS integration product the company announced recently, is another example of its ability to change and adapt and offer what small and medium-size service providers need.

Asterisk is the open source telephony switching platform that many SMBs use as an IP PBX. It has also rapidly become the technology of choice for small service providers that want to maintain their own switching infrastructure. Like Linux, Asterisk is available as a free, unsupported open source download or as a fully-supported and branded product.

Those service providers also need--may already have--RADIUS (Remote Authentication Dial In User Service) servers to authenticate customers on their networks, and integrated billing systems to ensure they get paid.

Both are readily enough available. What was not available until the ISPhone product, von Schlegell says, is a way to integrate an Asterisk switching system with RADIUS and RADIUS-based billing. Service providers could build links themselves, but many haven't--"it's still early days in the adoption of Asterisk as a service provider-type platform," he explains.

The company is mainly targeting its own customers with the new product, but any service provider could use it. Price to purchase separately: $500. If customers buy it bundled with ISPhone's RADIUS billing system, the incremental cost varies based on the number of ports in the system.

Some independent ISPs, of course, still don't, for whatever reason, offer voice services. If you're one but are now ready to make the move, you might want to consider ISPhone. It deserves kudos for, if nothing else, surviving and adapting in a turbulent industry in turbulent times.

This article originally appeared at ISP Planet, an OnlineJupiterWeb site.